GM Won’t Need Federal Aid By March 31; Chrysler Will (Update5)
By Jeff Green
March 12 (Bloomberg) -- General Motors Corp. said it told President Barack Obama’s autos task force that it won’t require $2 billion to survive this month while Chrysler LLC said it still needs aid in March.
“This development reflects the acceleration of GM’s companywide cost-reduction efforts as well as proactive deferrals of spending previously anticipated in January and February,” Chief Financial Officer Ray Young said in a statement today, without providing new timing on its borrowing needs.
Chrysler, which has requested an additional $5 billion “is focused on its viability plan,” spokesman Stuart Schorr said in a statement. Schorr noted that Chrysler said Feb. 17 it “will not have ample liquidity to operate,” if it doesn’t receive additional funds and restructure liabilities by March 31.
GM’s delay in requesting more government loans may indicate that about $15 billion in spending cuts are working. In July, GM said it was reducing salaried benefits, delaying products and closing plants to trim the need for cash, and added Nov. 7 that it would scale back further. On Feb. 17, GM said it needed $2 billion by March 31 to stay in business even after reining in expenses.
“It’s positive with the respect that they are able to get by another month without government loans,” said Dennis Virag, president of Automotive Consulting Group Inc. in Ann Arbor, Michigan. “The downside is that while things are changing rapidly, it still gives the appearance GM doesn’t have internal control over what their costs are. It could cause confusion.”
GM Cuts
GM, the largest U.S. automaker, is reducing executive pay and will eliminate 47,000 jobs this year as part of a restructuring required to keep $13.4 billion in U.S. loans. The company is trying to persuade the autos task force to give it as much as $16.6 billion more. GM has lost $82 billion since 2004, the last year it reported a profit.
The automaker is conducting weekly reviews of cash flows and made the determination after that review, GM spokeswoman Renee Rashid-Merem said in an interview. In addition to reducing its workforce, GM is scaling back on travel expenses and other discretionary spending, she said.
GM rose 32 cents, or 17 percent, to $2.18 at 4 p.m. in New York Stock Exchange composite trading. The shares declined 90 percent in the previous 12 months.
GM’s 8.375 percent bond maturing in 2033 rose 0.75 cent to 13.25 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The yield fell to 63 percent.
The auto panel will be briefed regularly on the status of GM’s reorganization, liquidity position, timing of future funding requests and other topics, according to Young’s statement.
Sales Down
GM’s savings don’t reflect improved U.S. demand for cars and trucks, which fell 39 percent in the first two months of this year, Virag said. GM sales slid 51 percent in that time, according to Autodata Corp. in Woodcliff Lake, New Jersey.
Chrysler LLC has received $4 billion in U.S. loans. Ford Motor Co. has said it has no plans to seek Treasury loans.
The government has set a March 31 deadline for GM and Chrysler to submit final plans that show they can return to profit and repay their borrowings.
The administration is sticking with its March 31 deadline for the plans, said an official, who asked to not be named because the task force’s activities are private.
GM, based in Detroit, shut most of its U.S. factories in January and early February to help reduce inventory, and that reduced the amount paid to suppliers, said Brian Johnson, a Barclays Capital analyst based in Chicago.
‘Didn’t Produce’
“GM didn’t produce anything in January, so March bills are not as high as they usually are,” said Johnson, who rates GM “underweight” and expects the shares to fall to 50 cents.
GM is selling or closing its Saab, Hummer and Saturn brands and negotiating with the United Auto Workers and with bondholders for another $28.5 billion in savings. The Canadian Auto Workers union ratified a new agreement yesterday that includes provisions to trim GM’s costs.
“When we look at the first two months of results, we’re seeing our companywide cost-reduction initiatives are working,” Young said on a video on a GM Web site. “We’re seeing some additional savings and some additional deferrals of expenditures.”
To contact the reporter on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net
Last Updated: March 12, 2009 18:05 EDT |
