General Motors Corporation in the United States has said it burned through US$10.2 billion in cash and posted a net loss of US$6 billion in the first quarter of 2009.
The massive loss came as the company relied on a government bailout to ride out a sharp decline in global sales that overwhelmed its cost-cutting efforts.
Revenue dropped by almost half to US$22.4 billion as the company cut production by a staggering 900,000 vehicles and worked to run down costly inventories in the United States and Europe.
The results showed the extreme pressure on GM with just four weeks remaining for the embattled carmaker to win deals to slash debt and operating costs with its major union and creditors to avoid bankruptcy.
“Results were awful, as expected, however, GM’s cash burn was even worse than we were expecting,” Kip Penniman of KDP Investment Advisors said in a note for clients, according to Reuters Newsagency.
GM Chief Financial Officer Ray Young said there was evidence consumers were scared away from the company’s cars and trucks because of concern the carmaker was headed for bankruptcy.
GM cut US$3.1 billion in operating costs in the first quarter, including just over US$1 billion in North America, but the latest push in a four-year campaign to cut costs failed to keep pace with the plunge in sales.
“You could not offset the revenue implosion that we experienced here,” Mr Young told reporters following release of the quarterly results on Thursday.
GM’s North American operations, where it plans to cut 21,000 factory jobs and close more than 2600 dealerships, posted a loss before interest cost and taxes of US$2.5 billion.
European operations, which Italy’s Fiat SpA has proposed taking over, posted a loss on the same basis of US$1.2 billion as vehicle sales in the region dropped 29 per cent.
GM still hopes to complete a debt restructuring out of court but is readying plans for what it expects would be a quick bankruptcy if that proves necessary, Mr Young said.
He said GM expects to draw on the experience of Chrysler LLC, which filed for bankruptcy last week under the supervision of President Obama’s government.
“We are very, very cognisant of this issue of revenue perishability and how consumers react to the threat of bankruptcy,” MR Young said.
Mr Young said GM would make a decision at the end of May on whether an offer to extinguish US$24 billion in bond debt in exchange for new shares had garnered enough support for the company to avoid a bankruptcy filing.
GM’s global market share fell to 11.2 per cent in the first quarter, down from 12.4 per cent a year earlier and it posted a first-quarter net loss of US$6 billion, almost double the loss of US$3.3 billion a year earlier.
The company has lost US$88 billion since its turnaround efforts began in 2005 under former Chief Executive Rick Wagoner.
The losses are expected to mount in the current quarter when GM shuts down US manufacturing plants for up to nine weeks in an effort to run down inventory and lessen its exposure to bankrupt former subsidiary Delphi Corporation.
GM is facing a government-imposed June 1 deadline to reach agreements to overhaul its operations and cut more than US$40 billion in debt.
It currently has a US$15.4 billion in emergency loans from the US Treasury and expects that to rise to US$18 billion by the end of the month.
The first quarter was marked by GM’s failure to win backing for a turnaround plan that the US government autos task force concluded was too slow-moving to succeed.
President Obama’s government ousted Mr Wagoner as GM CEO at the end of the quarter, replacing him with Fritz Henderson.
GM really needs to win concessions from the United Auto Workers union to make headway on in restructuring and is continuing talks on what the UAW will accept in return for about US$10 billion the union is owed for a trust fund for retiree healthcare.
The current proposal is that it accepts GM shares, which would give the union a 39 per cent stake in the restructured company.
Under the restructuring plan GM detailed last month, the government would own a majority stake, effectively nationalising the 100-year-old Detroit-based carmaker.