GM posts $1.2 billion loss, says it will begin to repay U.S. loans

GM posts $1.2 billion loss, says it will begin to repay U.S. loans

Chrissie Thompson
and Jamie LaReau

Automotive News | November 16, 2009 – 5:34 am EST


DETROIT — General Motors Co. posted a $1.15 billion loss during the third quarter following its exit from bankruptcy and spelled out plans to begin repaying $6.7 billion in U.S. loans.

"We have significantly more work to do, but today’s results provide evidence of the solid foundation we’re building for the new GM," CEO Fritz Henderson said in a statement.

The "managerial net loss" was for the period of July 10, the day GM exited 39 days of court protection, through Sept. 30. For the full quarter a year earlier, GM had an operating loss of $4.2 billion and a net loss of $2.5 billion.

GM also said:

• Revenue for the entire three-month period rose to $28 billion, up $4.9 billion from the second quarter. GM attributed much of that increase to a global seasonally adjusted annual sales rate of 67.8 million units in the quarter, up from 62.7 million in the second quarter.

• GM expects to burn through additional cash in the fourth quarter. It will pay out $2.8 billion for Delphi’s bankruptcy settlement, $2 billion for "payment term adjustments," $2.5 billion for loan repayment to the U.S., Canadian and German governments and $1 billion in restructuring costs. It said it expected its cash levels to be "materially lower than third-quarter levels of $42.6 billion."

• The U.S. total-vehicle sales rate will be 10.7 million units in the last three months of this year. GM said demand averaged 11. 7 million units in the third quarter, buoyed by the government’s cash-for-clunkers program. Light-vehicle sales rates are typically 200,000 to 300,000 units less than total-vehicle rates.

• Fourth-quarter global demand will slip to a 65.4-million-unit rate.

• In 2010, global sales will total between 62 million and 65 million units. In the U.S., total-vehicle sales will hit 11 million to 12 million units.

Different standards

GM said last week that today’s results wouldn’t match Security and Exchange Commission reporting standards. GM is using "managerial accounting" and the number won’t comply with generally accepted accounting principles, spokeswoman Julie Gibson said.

The automaker will switch to fresh-start accounting, applied to corporations after bankruptcy, for release of first-quarter figures next year.

GM will begin quarterly payments in December by shelling out $1 billion for the U.S. loan, the company said. At the same time, the automaker also will start repaying a $1.4 billion loan to Canada by giving back an initial $192 million.

GM was not required to make any payments on the U.S. loan before it matured in July 2015, but better-than-expected vehicle sales will let it start repayments much sooner than expected.

GM vehicle sales fell off less than expected during its government-supported bankruptcy in June and July. Sales since then, aided partly by the U.S. cash-for-clunkers incentives, have performed ahead of plan. In October, GM’s U.S. sales rose 5 percent, for their first year-over-year gain since January 2008. For the year, GM is down 34 percent.

As a result of the sales performance, GM has not been forced to burn through some $16 billion in taxpayer cash provided to the company when it emerged from bankruptcy. A person familiar with the situation said before the earnings release that GM has used only about $3 billion of these funds, which are contained in a restricted escrow account that cannot be accessed without Treasury approval.

Task force, GM board

GM said it will make its loan payments from the escrow account. Any leftover escrowed funds as of June 30, 2010, will go toward repaying the U.S. and Canadian loans, unless the U.S. Treasury extends the escrow by one year. After GM repays the loans, it will get any balance of the escrowed money, the company said.

The government stepped in to bail out both GM and Chrysler Group to save a key portion of the U.S. manufacturing sector from collapse amid the recession.

The $6.7 billion in senior debt to the U.S. Treasury is only a small portion of the more than $50 billion in taxpayer funds provided to GM. Much of this was converted to a nearly 61 percent equity stake, making the Treasury GM’s largest shareholder. Treasury officials have said they hope to sell shares in a GM initial public offering in the next year.

The source said this would not happen in the first half of the year, so the repayment plan would let GM reduce the loan by at least $3 billion "before any plausible IPO."

The repayment schedule also could be altered to accommodate IPO plans or accelerated payments, should conditions warrant.

But the source cautioned that GM’s condition was only modestly better than expected and it was not yet ready to repay the full loan amount.

Said the source: "While there are modest improvements which were important and put them in the position to do this, they are at the very beginning of a difficult restructuring and are not in any way out of the woods."


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