GM’s Dismal Year: $30.9 Billion Loss
General Motors Corp. capped a gloomy 2008 with a $9.6 billion loss in the fourth quarter, bringing its loss for the year to $30.9 billion. The results reflect a stunning downturn throughout the company’s global operations and raise new concern about its viability.
The company warned investors it may not be able meet its auditors’ “going concern” requirements, meaning it could break covenants on billions of dollars in debt in coming months. It was the second-worst financial performance in GM’s 100-year history after 2007’s results.
GM said 2008 revenue fell 17% to $149 billion from 2007, as vehicle sales plummeted 11% globally.
Standard & Poor’s equity analyst Efraim Levy said the earnings report “reinforces for us the notion that GM will need multibillion-dollar government assistance to continue as a going concern.”
GM burned through $5.2 billion in cash during the fourth quarter on an operating basis, and $19 billion over the year, as the rate of sales declines outpaced the company’s ability to cut costs.
The car maker had entered the year with more than $30 billion in liquidity reserves, or at least $16 billion more than the company needed to fund operations. That cushion disappeared as U.S. vehicle sales skidded to multidecade lows and a freeze in the credit markets prevented the company from raising funds.
GM ended 2008 with $14 billion in available liquidity — equal to how much cash the company expects to use this year, Chief Financial Officer Ray Young said in a conference call. GM said it needs $11 billion to $14 billion on hand to fund day-to-day operations.
The results were a bit worse than some analysts expected and pushed the cumulative net loss to $82 billion since Chief Executive Rick Wagoner began an intense restructuring in 2005.
GM is now subsisting on $13.4 billion in government bailout loans. Mr. Wagoner and other top executives met Thursday in Washington with President Barack Obama’s auto task force to request as much as $16.6 billion more, including $4 billion to fund operations in March and April. GM has also said it needs $7.5 billion in loans from the Energy Department to build more fuel-efficient vehicles.
Administration officials involved in the negotiations said Thursday the grim GM financial report was expected, and didn’t ratchet up the urgency over when or how the government may offer additional aid. Mr. Obama’s full auto team, led by new Treasury Department advisers Steven Rattner and Ron Bloom, met with the GM executives, said a person familiar with the talks.
One administration official involved in the auto talks this week, which earlier included executives from Chrysler LLC and Ford Motor Co., said that so far they have been “all about due diligence and fact-finding” and that decisions remain weeks away. Ford has yet to take any U.S. loans.
GM’s auditors must make a decision on the company’s “going concern” status by the end of March. Banks often have clauses in corporate loans allowing them to call them back if a company can’t show it is a going concern.
GM also reported a major reversal in the health of its pension funds. It said its U.S. pension commitments for hourly and salaried employees are underfunded by $12.4 billion because of weak market conditions and a reliance on the funds to pay for restructurings. In early 2008, the company said the pensions were overfunded by $18.8 billion.
In addition, the earnings report revealed a profound deterioration of GM’s once-strong operations outside the U.S. It reported a fourth-quarter loss of $1.9 billion in Europe, $917 million in Asia and $181 million in Latin America. In recent quarters, GM had relied on operations overseas, notably in China, Russia and Brazil, to offset weakness in its core U.S. market.
“The impact of the credit crisis has started to spread to emerging markets,” GM’s Mr. Young said. The auto maker has said it needs at least $6 billion in loans from non-U.S. governments for its viability plan to work.
Yet GM’s problems remain centered in North America, where sales fell to $19.3 billion in the quarter from $28.1 billion a year ago. GM lost $3.5 billion in North America during the quarter and $14.1 billion for the year.
Separately, Ford cut its first-quarter production estimates and lowered its annual sales forecast in a government filing. But Ford also said it doesn’t expect its auditors to question the company’s viability as a going concern at this time.
This article was originally posted in The Wall Street Journal