The Finch Formerly Known As Gold

13 February 2008

Doing the Full Lutz

To be able to do the Full Lutz, a patented maneuver by General Motors Vice Chairman Bob Lutz, you have to be able to shrug off what was widely reported as the largest single-quarter loss in automotive history.

Which, as Lutz says, was "a special charge in the third quarter" of 2007, and which was anticipated all the way back in November:

U.S. tax law allows a corporation that suffers net losses to carry forward the total loss balance into future years in order to use the negative numbers as offsets against future profits. The result is that future taxes are lower because the corporation is taxed only on the profits minus the forwarded loss. Meanwhile, the total losses that are carried forward are treated as assets on the balance sheet. That is where GM gets its total of $38.6 billion; it is the automaker's cumulative loss total.

The [Financial Accounting Standards Board] has decided to toughen the criteria for asset valuations on the balance sheet of corporations. Adjustments are required for assets that don't meet the tougher test by first quarter of 2008. This is a one time adjustment and it could be reduced in the future if it looks like GM will be more profitable.

Inasmuch as this explanation came from a former FASB chairman, I'm inclined to give it credence.

Meanwhile, Bob Lutz wants you to know that the General's actual retail sales — none of that fleet stuff — rose a healthy 11 percent in January:

We used to grab every sale, including daily rentals, no matter how unprofitable or ultimately deteriorating to the value of vehicle and brand. And if we wanted to go back to that, we could probably boost our share back up to 27 percent or so tomorrow.

But we're in this for the long haul now to reestablish our brands, to boost our residuals, and to improve the value and image of our vehicles. That's why the retail sales numbers are so important, and that's why I'd like to get the word out there about them. Somebody has to.

Especially when all the chatter is about an accounting entry that sounds worse than it really is.

Posted at 11:16 AM to Driver's Seat