Pig extorting ever more Bailout Heroin
GM Says Will Go Bust in Days Without New Bailout [Financial Times]
General Motors has warned that billions of dollars in government aid may
not prevent it from running out of cash if vehicle sales do not improve
In a regulatory filing, GM, which was overtaken by Toyota as the world’s
biggest carmaker last year, underlined the magnitude of its liquidity
crisis by warning that it cannot afford to repay a $1bn bond maturing on
June 1. The bond is part of $27bn in unsecured debt that GM is seeking
to restructure through a debt-for-equity exchange.
Bondholders’ advisers were due to meet on Thursday afternoon with the US
government task force overseeing GM’s restructuring. They were ex-pected
to ask for a guarantee on new securities that GM would issue as part of
its debt restructuring.
GM’s filing repeatedly raises the spectre of a possible bankruptcy
filing, in spite of warnings that such a move would be costly and could
do irreparable harm to its image in the marketplace.
Deloitte & Touche, GM’s auditors, have expressed “substantial doubt”
about its ability to continue as a going concern, based on continued
operating losses, negative shareholders’ equity and the inability to
generate sufficient cash flow.
The carmaker disclosed that its liquidity fell below the levels required
to run its business before it began receiving emergency loans from the
government last December.
It has so far received $13.4bn from Washington and has applied for
another $16.6bn. It has also assumed that it will receive about $6bn
from foreign governments, including the UK, Germany, Canada, Sweden and
Even so, the filing warns that “our efforts to continue to maintain
adequate liquidity will be very challenging given the current business
environment and the immediate working capital requirements of the
viability plan required by the US Treasury loan agreement. Moreover,
even if our liquidity enhancing actions are successfully implemented,
their full effect will not be realised until later in 2009.”
Maintaining adequate liquidity in coming months will depend on “the
volume and quality of vehicle sales, the continuing curtailment of
operating expenses and capital spending, the availability of funding
under…federal government programs and the completion of some of our
planned asset sales”.
US car and light-truck sales have recently fallen well short of the
levels assumed in the viability plan. The plan is based on a total
market of 10.5m units this year, rising to 12.5m in 2010. Sales in
January and February were running at an annual rate of 9.3m.
One analyst said on Thursday that GM’s assumption of a continuing 20 per
cent market share was also unrealistic. “It’s not viable,” he said.
“This whole thing has become a political issue.”
GM said that a default on June’s bond repayment “could also trigger
cross defaults in other outstanding debt, which would potentially
require us to seek relief through a (bankruptcy) filing”.
The bond-restructuring talks are taking place in tandem with
negotiations with the United Auto Workers union over GM’s proposal to
pay half of its contribution to a union-managed healthcare fund in the
form of stock rather than cash.
“It’s kind of tricky because the bondholders and the UAW are looking
back and forth at each other”, one person familiar with the negotiations
GM shares fell 15 per cent to $1.86.