Analyst: GM may burn $13.9B in cash by 2011
DETROIT (Reuters) -- General Motors is expected to burn $13.9 billion in
cash over the next 2½ years amid a sharp drop in truck sales and may be
forced to raise additional capital, Bank of America said in a report.
The automaker may raise about $6 billion to $8 billion through a secured
loan and possibly a convertible securities issue, as the collapse in
demand for large vehicles and restructuring charges will leave GM in a
"precarious" cash position, the bank said in the report released late on
The embattled automaker, which ended the first quarter of 2008 with
$23.9 billion in cash, is likely to end this year with $17.4 billion and
the cash on hand is expected to fall further to $10 billion by the end
of 2010, the report said.
GM, which lost a combined $51 billion in the past three years including
non-cash accounting changes, lost another $3.25 billion in the first
quarter, as higher gas prices prompted consumers to shun large trucks
and SUVs, long the bread-and-butter segment for U.S. automakers.
The second quarter appears to be even weaker and analysts don't expect a
recovery in the second half of the year amid gas prices at more than $4
a gallon in some areas.
"Given the cash picture, pressure is mounting for GM to raise capital,"
Bank of America said. "Even though the bank loan market remains very
tight, we think GM has enough unencumbered collateral to successfully
issue a secured term loan."
A spokeswoman for GM could not be reached immediately for comment.
The capital raising could help GM's bonds and credit derivatives by
reducing liquidity fears, but Bank of America said it is keeping a
"neutral" rating on GM because of the automaker's weaker sales outlook.
However, GM could see a significant increase in earnings and operating
cash flow in 2010 when it starts to see savings from an agreement with
the UAW to transfer retiree health care costs to an independent
union-aligned trust fund, the report said.
GM said on Monday it would cut truck production in response to slowing
demand and launch aggressive incentives to combat the drop in demand for
trucks and SUVs.
Standard & Poor's also said last week it may cut ratings on GM, Ford
Motor Co. and Chrysler LLC due to financial damage resulting from high
GM's U.S. sales adjusted for the difference in selling days are down 17
percent through the end of May from a year earlier, led by a 23 percent
drop in truck sales. In May, GM's truck sales tumbled nearly 40 percent.
Auto analysts painted a grim picture of the sector in June with
seasonally adjusted annual sales expected to come in as low as 12.5
GM shares were up 2.25 percent at $13.20 on the New York Stock Exchange,
recovering slightly after hitting a 33-year low on Monday.