GM loses $US6 billion in three months
BY IAN PORTER | 8th May 2009
It was GM’s seventh straight quarterly loss and brings the struggling company’s cumulative losses since 2004 to $US82 billion ($A108 b).
Only one of the group’s four automotive divisions – Latin America – reported a positive result, while Asia-Pacific which includes GM Holden, was the worst performed division.
The poor Asia-Pacific result – revenues down 55 per cent to $US2.4 billion ($A3.17 b) and a loss of $US21 million ($A27 b) before interest and tax – was posted despite another strong performance by the China operations.
The main cause of the revenue slump in Asia-Pacific was GM Daewoo which suffered as a result of slumping sales in many of its export markets.
Despite the huge fall in revenues, GM chief financial officer Ray Young said he was confident revenues would recover in the current quarter.
“The fall of 903,000 units in production (to 1.33 million) is a staggering drop, but it is important to remember that is was partly due to a policy of inventory draw-down,” he said.
Mr Young said GM had cut production harder in January than the market required as it was aiming to reduce stocks already in dealers’ hands.
“The global industry will recover and we will get this inventory adjustment behind us, and then we will see production and revenues rise again.” Mr Young also admitted that the continual speculation about GM going into bankruptcy was having an adverse effect on sales, although he could not quantify it.
“We need to get this bankruptcy speculation behind us so folks can focus on our products not on our potential bankruptcy,” he said.
“That’s when revenues will recover.” He conceded that a bankruptcy would have a lingering impact on sales even with the US government’s warranty support program for GM and Chrysler products.
“We need to get off the front pages of the newspapers every day and we need to get sales up.
“We need to change the emphasis away from the potential bankruptcy and the company’s financial position and get customers to focus on our great new products.” Mr Young said GM would prefer to resolve its debt reduction program without going into court-administered bankruptcy, but repeated the threat of his chief executive, Fritz Henderson, by saying the company was willing to go into bankruptcy if it delivered a quick result.
“We are willing to go into bankruptcy, but it is imperative we can be in and out quickly, in a matter of weeks,” he said.
GM last week unveiled a debt-swap offer to its unsecured bondholders, who are owed a total of $US27 billion, in which they would be offered new GM shares as settlement of their debts.
They were offered 225 new shares for every $1000 of debt capital owed, but the US treasury has limited the number of shares they can actually receive by limiting their total ownership after the settlement to 10 per cent.
The bondholders are complaining of not being offered the same terms as other debtors and are threatening to take court action.
When asked how quickly GM might recover the 47 per cent drop in sales, Mr Young said: “In this industry, you can go down quickly and you can come back up quickly.
“The products that we are introducing now are going to have better price points than the models they replace,” he said, adding that they will not need to be discounted and that, in turn will help lift revenues.
On the sales of its European and other operations, Mr Young said GM was still talking to a number of potential buyers of Opel/Vauxhall, not just Fiat.
He said he expected GM would be able to reach agreement to collaborate on current and new models with whichever company bought the European business.
The huge loss did not include any major asset write-downs or impairment charges and was an accurate reflection of the company’s actual trading performance.
Production in North America was down 58 per cent for the three months to 371,000 as GM worked to reduce dealer stocks by 105,000 units to 767,000 units.
Production was down 46 per cent in Europe to 267,000 units, down 24 per cent in Latin America to 185,000 units and up six per cent to 436,000 in Asia-Pacific, thanks to China.
The group burned through $US10.2 billion of cash during the quarter and Mr Young said GM would need to call down a further loan of $US2.6 billion from the US Treasury later this month.
It would also need a further loan of $US20 billion to tide it over the rest of the calendar year.
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