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GM's really bad news: Its revenue

DETROIT — A $15.5 billion loss is bad enough, but that may not even be the worst news in General Motors' abysmal second-quarter earnings report.

Here's the really bad news: General Motors' North American quarterly revenue totaled $19.8 billion, down nearly $10 billion compared with the same period a year earlier.

Revenue is a strong indicator of an automaker's health because it does not contain any one-time items, says Dave Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.

Revenue shrinks
GM second-quarter results showed sharp declines in North American and overall revenues
 Q2 2008Q2 2007
N. American revenue$19.82 billion$29.66 billion
Revenue$38.15 billion$46.67 billion
Adjusted net income- $6.34 billion$1.30 billion
Reported net income- $15.47 billion$784 million

'In a battle for their life'

"Revenue is a measure of the business going forward," Cole says. "They're in a battle for their life."

GM attributes about $1.8 billion of its revenue downturn to production lost during the strike at American Axle & Manufacturing Holdings Inc. And the slow economy also took a toll. But disappearing sales of high-profit trucks — a problem that will continue as GM continues to change its sales mix — played a major role.

Cars and crossovers accounted for 58 percent of GM's July production, and GM will continue to boost production of cars and crossovers in the third quarter.

But even with more cars in its lineup, GM will struggle to replace the revenues lost when sales of full-sized SUVs and pickups collapsed.

Consider the Chevy Malibu, one of the few GM nameplates selling well this year. The Malibu's average transaction price is $22,329, according to data from the Power Information Network. That's what consumers paid for the vehicle from July 1-27.

By contrast, the Chevrolet Silverado 1500 pickup sells for $26,326, and the Chevrolet Tahoe averages $38,264.

So even a fully loaded Malibu can't touch a Tahoe.

More cars

But GM doesn't have much choice. CEO Rick Wagoner has declared that the consumer shift away from big trucks is permanent, and his product plans reflect that.

Over the next year and a half, GM says it will introduce 19 new vehicles, 18 of which are either cars or crossovers. The first one to come will be the Chevrolet Traverse crossover next month.

In 2011, Chevrolet will add a minicar, and GM is considering small cars for its Saab, Cadillac and Saturn brands.

The highest-profile car in GM's future is the Chevrolet Volt, a plug-in hybrid that will debut in 2010. But this compact sedan will carry a hefty price tag approaching $40,000, so it may be fated to remain a small-volume niche vehicle.

In his conference call with reporters and analysts last week, company CFO Ray Young said he is confident GM can stabilize its cash flow. In June, GM disclosed plans to close four truck plants by 2010, and reduce annual truck production capacity by 500,000 units.

All these cost-cutting moves will conserve precious cash. But Young added: "Ultimately we're going to have to grow the business."

While the market for full-sized pickup market will rebound, it will never return to its former glory, says Jim Hall, a former GM employee and managing director of 2953 Analytics, a consulting firm in suburban Detroit.

Hall and Cole say GM can survive, provided the economy doesn't crumble between now and 2010. Says Cole: "If we don't have a recovery in the next year or so, then we're really in trouble."  

You can reach Jamie LaReau at jlareau@crain.com

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