GM posts $5.9 bn loss, presses shareholders to forgive $44 bn in debt.
General Motors Corp posted a $5.9 billion adjusted loss that was narrower than analysts’ estimates as it pressed stakeholders to forgive $44 billion in debt before a US-imposed June 1 bankruptcy deadline.
Excluding some costs, the first-quarter loss of $9.66 a share was smaller than the average $10.97 loss estimate from 11 analysts surveyed by Bloomberg, and the shares rose in early New York trading. Revenue tumbled 47 per cent to $22.4 billion.
Chief Executive Officer Fritz Henderson said this week he still wants to avoid taking the 100-year-old automaker into court protection. Such a step is more probable now, he said, as bondholders resist a plan ordered by the Obama administration to exchange $27 billion in debt for equity in a reorganised GM.
“The first-quarter results reinforce the plan we announced at the end of April to bring our cost structure down aggressively,” Chief Financial Officer Ray Young told reporters today at GM’s Detroit headquarters.
GM had $11.6 billion in cash at the end of March, a decrease from $14.2 billion as of December 31. The biggest US automaker used $10.2 billion more in cash than it generated from operations, which was partially offset by new government loans. First-quarter output plunged by 903,000 vehicles, GM said.
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“Global production fell 40 per cent,” Young said. “That’s the reason we saw the revenue implosion.”
Young said the cash use was less than GM projected in a February report to the US Treasury, in part because of $3 billion in structural cost reductions in the quarter.
The net loss widened to $5.98 billion, or $9.78 a share, from $3.3 billion, or $5.74, GM said. Before today, losses at the company totaled $82 billion since 2004, its last profitable year. GM is surviving on $15.4 billion in emergency federal aid.
Should it have to file for bankruptcy, GM is ready to go “in and out quickly” Young said.
President Barack Obama set the bankruptcy deadline on March 30, giving GM 60 days to restructure out of court. He rejected the company’s original plan to shed 47,000 jobs this year and cut about $28.5 billion in union and bond debt, saying it wasn’t enough to return the automaker to viability.
Under the survival plan unveiled April 27, GM agreed to kill the Pontiac brand, added two more plant closings and said at least 7,000 more union jobs will be eliminated by the end of next year.
GM said today it “also expects to implement additional salaried employee and executive reductions,” without elaborating.
GM rose 8 cents, or 4.8 per cent, to $1.74 at 7.39 am before regular New York Stock Exchange composite trading. The shares declined 39 per cent in the first quarter.
The company’s 8.375 per cent bonds due in July 2033 rose 0.35 cent on May 5 to 8.4 cents on the dollar, yielding 98 per cent, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.
GM probably will be removed from the Dow Jones Industrial Average after almost 74 years, John Prestbo, the editor and executive director of Dow Jones Indexes, said in an interview on Wednesday.
The Obama administration’s directives to GM included asking Rick Wagoner to step down as CEO and chairman, elevating Henderson to CEO and naming director Kent Kresa as chairman. Kresa is now replacing a majority of the 11-member board.
GM’s April 27 plan envisions that the US would control at least 50 per cent of 60 billion shares in a restructured company, and a union-run health-care fund would get as much as 39 per cent. Unsecured bondholders would get 10 per cent and existing shareholders would get one per cent, GM said.
Bondholders would get 225 shares in the new automaker for each $1,000 in principal. Upon completion of the exchange, GM would do a 1-for-100 reverse split of the stock.
Without support from 90 per cent of the bondholders by May 26, GM plans to file for bankruptcy, Henderson said after unveiling the offer.
Bondholders countered that offer with a proposal that GM give them 58 per cent of the equity in the reorganised company. Henderson told reporters earlier this week that the US Treasury has indicated it “would not be supportive of shareholding in excess of 10 per cent” for the bondholders.
The discussions among GM, Obama’s car task force and the bondholders are unfolding against a US auto market that shrank 34 per cent last month.
On April 23, GM announced as much as 9 weeks of downtime at 14 North American plants through mid-July to adjust output to match dwindling demand.
Since then, the automaker has added back a week of production at a Texas sport-utility vehicle plant and two weeks at a Michigan truck plant. GM said on Wednesday it cancelled a scheduled vacation week at its Oshawa, Ontario, car plant because of strong demand for the new Chevrolet Camaro.