July 19, 2024

GM expects delayed funds to avoid cash crisis


General Motors Corp.'s world headquarters is seen along the Detroit River in Detroit, Michigan November, 18, 2008.By Kevin Krolicki

DETROIT (Reuters) – General Motors Corp Chief Operating Officer Fritz Henderson said the automaker expected to receive a delayed U.S. government loan payment in the next several days that it needs to avoid running out of cash.

Separately, Henderson said GM had been in touch with the Swedish government and potential investors for Saab as it looks to sell that brand to raise cash.

“We’ve talked to investors and we’ll see where it leads,” Henderson said at the Automotive News World Congress in Detroit on Tuesday.

GM received an initial $4 billion in emergency funding from the U.S. Treasury on December 31 and had expected to receive its next $5.4-billion payment from the government last Friday.

That payment was delayed, Henderson said, because the automaker was pressed to submit additional information and because Treasury officials were busy with other funding requests and the change in administration in Washington.

“If we don’t get the second installment of our funding, we’ll run out of cash. It’s that simple,” Henderson said.

GM expected to receive its next $5.4 billion payout in the next several days, he added that. But without the funding, GM would run out of cash “well before March 31,” Henderson said.

Henderson said GM had ruled out a voluntary bankruptcy filing because of the risks that it presents to sales, but could be forced into bankruptcy in a hypothetical case if the U.S. government were to withdraw its pledged financial support.

“Much has been written about how simple (bankruptcy) would be. I can only tell you how devastating the risks are to the business, which is why in the end we think it is a truly terrible strategy — but it can happen,” Henderson said.

“We’re doing contingency planning in the event that something bad happens, and we have to deal with that, but it’s not a great environment to be in,” he said.

The U.S. government has pledged to loan $13.4 billion to GM for three years provided that it demonstrates that it has a plan to pay back the loans and become viable. Under the program, GM faces a February 17 deadline to show its progress.

The U.S. government bailout requires GM to seek deep concessions from bondholders and the United Auto Workers union in order to cut both its debt and hourly wage costs.

Henderson said GM had been in contact with the UAW and bondholders but was focused first on updating its own restructuring plan based on expectations for weaker auto sales in 2009.

“A hundred and forty percent of our effort is focused on getting that done this month,” he told reporters.

Last week, the automaker cut its forecast for 2009 U.S. auto sales, saying it expected sales to drop to their lowest level in 27 years at 10.5 million vehicles.

January auto sales, Henderson said, had been “pretty weak” to date in keeping with the depressed trend of late 2008.

GM’s bondholders and the company have both hired advisers on how to complete a debt-to-equity exchange that the automaker expects will reduce its unsecured U.S. debt to $9 billion from nearly $28 billion.

The company also plans to halve the $20 billion it has promised to a health care trust fund affiliated with the UAW by offering equity instead of cash.

Henderson said GM could reach a broad agreement on contract changes with the UAW by February 17 but that union acceptance of the deal would depend on the concessions other creditors were prepared to make.

Henderson conceded GM may have missed warning signs that the slump that began in the U.S. auto market in 2008 would cascade to emerging markets, which had previously provided a buffer to the automaker.

“We clung too long to the idea that we had two economies, and it was just an American problem,” Henderson said.

(Editing by Lincoln Feast.)

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