GM posts $9.6 billion loss, burns through $6.2 billion cash
General Motors is officially on life support.
The automaker said Thursday that it lost $9.6 billion in the fourth quarter and nearly $31 billion for all of 2008, its second-worst year on record.
But even more troubling is the revelation that the century-old automaker essentially has become dependent on the U.S. government, unable to continue operations -- even for a few months -- without recurring cash infusions from taxpayers.
“They basically have been saying, ‘Give us money or we’re going bankrupt,’ ” said Aaron Bragman, auto industry analyst at IHS Global Insight. “And these latest financial results prove that.”
In the fourth quarter, GM burned through $6.2 billion of its cash stockpile, $68 million a day, a furious clip that left it with only $14 billion at the end of last year, less than half the reserves it had a year earlier.
Subtract the $4 billion that came from the U.S. Treasury in late December, and GM falls below the $11-billion- to $14-billion level GM has said it needs to finance ongoing operations.
Meanwhile, GM said Thursday that it soon expected to receive a “going concern” notice from its auditors, indicating that on an operating level, it is no longer solvent.
GM’s fourth-quarter loss, at $15.71 a share, was more than double analysts’ average expectation of $7.40 a share. GM shares fell 17 cents, or 6.7%, to $2.38.
The underlying message, industry experts say, is that GM’s predicament is everyone’s, or at least every U.S. taxpayer’s. If the administration fails to support the automaker, it could quickly collapse, and with it millions of direct and indirect jobs. But if the government elects to keep dispensing cash, there may be no end to the funding needs.
“The only question is whether the hole GM is in is so deep that it can’t climb out of it even with government aid,” said Shelly Lombard, credit analyst at research firm Gimme Credit, calling a bankruptcy filing “very likely” without government intervention.
As such, GM finds itself becoming something of a vassal to the federal government, dependent on it for funding and increasingly forced to play by the government’s rules.
GM’s chairman and president were in Washington on Thursday, meeting for several hours with members of the administration’s auto task force to explain its financial position and to beg for $2 billion more cash to fund March operations, along with $2.6 billion for April.
All told, the automaker has requested an additional $16.6 billion beyond the $13.4 billion it has already received.
“We found a genuine willingness among the task force to understand our business, industry challenges and GM’s restructuring plan,” the company said in a statement after the meeting.
Chrysler, which is also seeking aid, has received $4 billion already and is requesting $5 billion more. Its leaders met with the auto task force Wednesday.
Along with Treasury Secretary Timothy F. Geithner, President Obama has installed a buyout specialist from Wall Street, Steven Rattner, and a labor negotiator known for completely reshaping the steel industry, Ron Bloom.
Although it seems likely that the administration will find a way to prop up the automakers in the short run, it also is holding a number of strict restructuring requirements over their heads. If they fail to jump those hurdles by a March 31 deadline, the government could recall the loans it has already made.
Beneath the auto panel’s gaze, GM has been furiously negotiating with United Auto Workers to cut labor costs and cash obligations to a retiree health trust. It also has been meeting with bondholders in an attempt to get them to swap two-thirds of their debt for equity in the company.
Meanwhile, it has announced plans to make deep cuts, including laying off 47,000 workers worldwide this year, cutting its lineup of U.S. brands in half and slashing production.
The company has made small internal changes, including reducing office supplies and eliminating perks for dealers, in an effort to make ends meet. And it’s spreading the pain to suppliers and other vendors.
Stephen Eshelman, co-owner of Crossroads Films, has made dozens of car commercials for GM. But last month, the automaker changed its arrangement with vendors radically, canceling down payments for services and delaying full payment up to 140 days.
That makes it impossible for a production company to get financing to pay for its work, said Eshelman, who is based in Los Angeles. As a result, he said he declined to bid for a $3-million commercial GM inquired about this week.
“I don’t know how they can make any commercials at all considering their current finances,” said Eshelman, who said he was told the payment change applied to all GM suppliers.
Even such dramatic attempts to preserve cash might not be enough.
GM has huge fixed costs, including an underfunded pension plan.
With revenue still sliding, GM will be unable to turn to traditionally robust foreign markets to take up the slack: It lost money in all four global regions it operates in last year, and global sales are forecast to drop significantly in 2009.
GM’s revenue in the fourth quarter fell 34%, to $30.8 billion from $46.8 billion. For the full year, revenue decreased 17.2%, to $149 billion, and GM’s U.S. vehicle sales volume was down 23% in 2008.
The yawning $30.9-billion loss, or $53.32 a share, was the second worst in the automaker’s history, after 2007, when GM lost $43.3 billion largely because of a tax-related accounting charge.
GM has been in some form of restructuring since Rick Wagoner was named chief executive in 2000. Since then, GM’s stock has lost more than 95% of its value, and the company has surrendered significant market share in the U.S.
Last year, for the first time, it ceded the title of the world’s largest automaker to Toyota and saw its share of the worldwide car market drop to 12.4% from 13.3%.
Despite the grim outlook, Obama pledged support for the automakers in his speech to Congress on Tuesday.
“Millions of jobs depend on it. Scores of communities depend on it. And I believe the nation that invented the automobile cannot walk away from it,” he said.
Increasingly, analysts wonder just how much a commitment that will turn out to be.
A Wachovia Capital Markets projection released Thursday put February’s annualized U.S. sales rate, a key indicator in the industry, at 9.5 million vehicles. That’s 1 million cars and trucks below the rate that GM said it needs to remain solvent, and 3 million below the number it needs for profitability.
“If the market stays at these depressed levels, the amount of money GM will need is going to be a lot greater,” said Steven D’Arcy, head of the auto industry group at PricewaterhouseCoopers. “Then again, if the market stays at these depressed levels, we have even bigger problems.”
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