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WORLD> America
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GM posts $6B Q1 loss, spends $10.2B in cash
(Agencies)
Updated: 2009-05-07 23:57 DETROIT – General Motors Corp. lost $6 billion in the first quarter and its revenue was cut nearly in half as car buyers feared the wounded auto giant would enter bankruptcy and no longer honor its warranties.
The Detroit-based company also said it spent $10.2 billion more cash than it took in from January through March, mainly because revenue dropped by a staggering $20 billion, or 47 percent. Chief Financial Officer Ray Young said talk of the company going into Chapter 11 bankruptcy protection appeared to have scared some consumers away from buying GM vehicles. GM faces a June 1 government deadline to finish a restructuring plan or go into bankruptcy protection. "The concern about bankruptcy is having an impact on our sales," Young told reporters Thursday morning. He said a US government guarantee of GM and Chrysler warranties was not revealed by the Obama administration until March 30. So, for most of the quarter, consumers were unsure about warranty protection. Chrysler last week filed for bankruptcy protection. Young said people should be reassured by the warranty guarantee, but it might take time for word to spread. GM's loss for the quarter amounted to $9.78 per share, compared with a loss of $3.3 billion, or $5.80 per share in the year-ago period.
Although the company cut structural costs by $3 billion, Young said that wasn't enough to offset plunging revenue. "We cannot cut costs fast enough to offset that revenue loss," he said. "People are concerned about bankruptcy, and that's the reason why we want to avoid it if at all possible." The first-quarter revenue drop, he said, was due largely to GM's effort to cut inventories, reducing production by 900,000 vehicles globally, or about 40 percent. Also included was $3.5 billion in currency exchange costs because the US dollar strengthened, he said. "That's why we saw the revenue implosion ... the combination of weaker global industry volumes and our decision to take down dealer stocks around the world," he said. The company intentionally cut low-profit sales to fleet buyers such as rental car companies, Young said. In a conference call with reporters and industry analysts, Young cautioned that a revenue drop can be dangerous for the company's financial health. "Once you start losing revenue, you get yourself into a vicious circle in which you cannot recover," he said. He conceded that the second quarter will be tough for GM because it is shutting many of its US factories for up to 11 weeks to further slash dealer inventories, but said he is confident GM's revenue will recover. "You will see the global industry recover," he said. Once the company gets through inventory cuts and bankruptcy talk, Young said revenue will bounce back because GM is making more money on new products than on the vehicles they replaced. "When you add all these factors together, our assessment is clearly our revenue line will improve in the future," he said. GM's cash burn for the quarter was offset by $9.4 billion in US government loans GM received in the first quarter. GM got another $2 billion in April, bringing total government loans to $15.4 billion. |
