GM won't need $2B US government loan instalment
General Motors Corp. says its restructuring plan is starting to take hold, improving the automaker's fortunes at least to the point that it won't need a $2-billion US government loan instalment that it had requested for March.
Chief financial officer Ray Young said Thursday that GM formally told the Obama administration's autos task force on Wednesday that it wouldn't need the money this month. But in an interview with the Associated Press, Young would not say when the struggling automaker would need more government money or whether it will reduce the size of its loan request.
"It seems like our companywide cost reduction efforts are moving well, as well as we've been able to defer spending that we previously anticipated in January and February," Young said. "I think that's a positive development."
GM, which is living on $13.4 billion in government loans, has requested another $16.6 billion as it tries to weather the worst auto sales slump in 27 years.
Young said GM is continuing to calculate its cash balances and plans to update the task force when it may need more money.
"We're working through the forecast right now," he said. "We're not going to slow down in terms of our companywide cost reduction initiatives. We continue to look toward deferring expenditures as much as we can in order to avoid having to draw more liquidity."
Young said GM's cash burn rate, the amount of spending above revenue, has slowed since the company submitted a viability plan to the government on Feb. 17.
"The cash burn that we thought we were going to have in January and February is not as high. Clearly we still have a cash burn," he said, attributing the burn rate to a lack of revenue from the company shutting down many of its factories for the month of January.
$30.9B loss
GM burned through $19.2 billion in cash last year on its way to a $30.9 billion loss.
Young would not say if GM will need another government loan draw in April. In its viability plan filed Feb. 17, GM asked for $2 billion in March and another $2.6 billion in April. It would not need any more money until 2011 when a $4.5-billion revolving line of credit comes due. The company also says it could need up to $7.5 billion more if the economy doesn't improve, for a total of $30 billion by 2011. It plans to start repaying the loans with $2 billion in September.
GM is coming close to spending the $13.4 billion in government loans it received through February. The money, Young said, was used largely to pay parts suppliers, employees and dealers when GM had little revenue coming in due to January production slowdowns across the globe.
"We had very little receipts, but we still had a lot of payments related to prior production and prior sales," he said. "We used that liquidity in order to address basically a lot of expenses that we had."
Young also said in the interview that GM's new contract with the Canadian Auto Workers union, ratified Wednesday by the membership, comes very close to closing the cost gap that GM has with foreign automakers that have U.S. factories.
He conceded it doesn't close the entire gap, and would not say how much GM will save from the concessions or what its hourly labour costs would be. Young also said GM is in talks with the CAW and the Canadian government about forming a trust fund that would pay retiree health-care costs in Canada.
Young wouldn't comment on Chrysler LLC vice-chairman Tom LaSorda's threat to close Canadian plants if Chrysler doesn't get cost-competitive contracts and government aid, saying Chrysler's costs could be different from GM's.
GM, under the CAW contract, agreed to keep 20 per cent of its North American manufacturing volume in Canada. The agreement includes a wage freeze to September 2012, the elimination of an annual bonus and a reduction in paid time off, among other concessions.