For the first time since the financial crisis, workers at General Motors can finally breathe a sign of relief.
The “old” GM declared bankruptcy in 2009, and while those in the auto industry are always skating on thin ice (as they’re in an incredibly capital intensive and low-margin business), workers receiving their bonus checks won’t get that impression.
While we’ve reported previously on the hundreds of companies offering up $1,000 bonuses to their employees in the wake of tax reform, those at GM are getting just a tad more.
As the Detroit News reported,
General Motors Co. will pay about 50,000 United Auto Workers hourly employees profit-sharing checks of up to $11,750 this year, the company said Tuesday.
The Detroit automaker, which lost $3.9 billion last year, announced profit-sharing as part of its full 2017 earnings report. Before taxes, GM made $12.8 billion on $145.6 billion in revenue. Its pre-tax profits in North America totaled $11.9 billion, and that’s the figure profit-sharing is based on.
In case you’re wondering how the heck there can be profit-sharing when the company lost $3.9 billion on paper last year, the answer is a single word: depreciation.
If GM purchases a piece of equipment for $10 million that they expect to have a useful life of 10 years, they do not record it as a $10 million expense in their financials the year of the purpose. Instead, they’ll amortize the expense on their financials at $1 million a year for 10 years. In other words, each year there will be a $1 million “non-cash” expense in the form of depreciation incurred on their income statement. It allows them to write-off $1 million a year off their taxes (as opposed to $10 million all at once), but it’s not a “real” expense.
For companies with high depreciation expenses, their “net cash flow” is a more accurate measurement of their profitability, not “net income.” GM had nearly $9 billion in free cash flow last year.
“Today’s General Motors profit sharing, established under the 2015 contract negotiations, recognizes that UAW GM members’ hard work is an essential part of General Motors sales and profits,” UAW vice president Cindy Estrada said in a statement. “UAW members at GM negotiated a well-deserved share in the profits of their hard work and sacrifice.”
GM paid about $12,000 to some 52,000 UAW workers on a $9.43 billion profit last year.
While not explicitly related to Trump’s tax plan, remember that he’s cut the corporate tax rate from 35 percent down to 21 percent. Worker’s profit-sharing is dependent on the businesses profits – and there’s going to be a heck of a lot more of those next year.
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