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GM posts $6 billion loss on shrinking sales, fear of bankruptcy

Jesse Snyder
and Jamie LaReau

Automotive News | May 7, 2009 – 7:10 am EST


GM posts $6 billion loss on shrinking sales, fear of bankruptcy

DETROIT — General Motors, facing a June 1 U.S. restructuring deadline to avoid bankruptcy, posted its seventh straight quarterly loss in the first quarter as its global auto sales fell 28 percent.

The company said it burned through $10.2 billion in cash while being supported by $13.4 billion in U.S. loans in the quarter and an additional $2 billion since.

The net loss was $6.0 billion, compared with a $3.3 billion loss a year earlier and adding to $82 billion in annual losses since 2004. GM’s global revenue declined 47 percent to $22.4 billion.

“Our first-quarter results underscore the importance of executing GM’s revised Viability Plan, which goes further and faster to lower our break-even point,” said CEO Fritz Henderson in a statement. “Our plan is designed to fix the fundamentals of our business by restructuring and deleveraging our balance sheet, enhancing our revenue capability and dramatically reducing costs.”

The first-quarter operating loss was $5.9 billion, compared with an adjusted net loss of $381 million in the first quarter last year.

GM is racing to beat the U.S. auto task force’s June 1 deadline to complete a turnaround and secure deals with the UAW and bondholders to reduce debt.

Without additional concessions, Henderson, who took over more than a month ago from the ousted Rick Wagoner, has said the automaker will file for bankruptcy.

Even if it clinches debt-restructuring deals, GM said this week it could issue up to 60 billion new shares to pay off its debt to the government, bondholders and the UAW.

That flood of new shares would leave current GM investors with 1 percent of the restructured company and take the value of the stock to less than 2 cents.

GM shares fell 10.3 percent on Wednesday to $1.66.

"We would like to see actions that will ultimately position GM to be a smaller but profitable automaker along with details on how it will achieve this," S&P equity analyst Efraim Levy said in a statement before today’s results were released. "Unfortunately for GM current shareholders, we do not expect them to meaningfully share in any recovery."

Request to creditors

GM has asked its three major creditor groups to write off at least $43 billion in debt in exchange for ownership stakes in a restructured company.

GM bondholders, who are owed $27 billion, have also been offered new stock in exchange for writing off debt in a bond exchange the automaker launched last week.

GM is targeting a reduction of at least $24 billion, or 90 percent, of its bond debt under the plan and has warned that it could be forced into bankruptcy if that cannot be achieved.

Barclays Capital analyst Brian Johnson said the success of bankrupt Chrysler LLC in winning approval to sell most of its assets quickly made it more likely that GM would follow its smaller rival into court protection.

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