General Motors Corp has enough government loans to cover the worst-case scenario it described last month and says it won’t need more if the economy holds up.
The US Treasury has pledged as much as $13.4 billion in aid to help GM pay its bills and $6 billion to prop up lender GMAC LLC, which GM relies on for auto loans and dealer support. President George W Bush agreed to the rescue after the biggest US automaker said it wouldn’t have enough money to pay bills in December. “The US Treasury’s $13.4 billion bridge loan to GM, coupled with the separate transaction for GMAC, meets our liquidity needs under the scenarios outlined in our December plan to Congress,” GM spokesman Greg Martin said on Tuesday.
GM is trying to win concessions from its biggest union, cut its debt level in half, and trim brands and dealerships as part of a restructuring plan to show it will be able to repay the money. A progress report is due February 17 to the Treasury Department, and a final report is due March 31. If the plan doesn’t pass government scrutiny, GM has to repay the loans.
“It all depends on a lot of difficult-to-forecast factors, like the size of the market,” said John Casesa, a former Merrill Lynch auto analyst who’s now a partner at consulting firm Casesa Shapiro Group in New York.
GM’s market share, the health of the economy and action by competitors are all unknowns, he said.
The Detroit automaker said December 2 that its worst-case scenario for 2009 US auto sales is 10.5 million vehicles. GM reiterated January 5 that US sales will range from 10.5 million to 12 million this year, based on the current economic expectation.
GM received the first $4 billion December 31 from the Troubled Asset Relief Program administered by Treasury. GM is spending that money to pay bills, mostly to its 3,000 suppliers, said spokeswoman Renee Rashid-Merem.
The automaker is due to receive an additional $5.4 billion this month. Should Congress agree to release a second $350 billion in TARP funds, GM will get $4 billion more in February.
The Treasury Department also gave Chrysler LLC $4 billion January 2 to help it stay in business and said December 31 it has drafted broad guidelines for aid to the auto industry that would let officials provide funds to any company they deem important to making or financing cars.
With both companies saying they were only weeks away from insolvency, the White House stepped in after a compromise plan backed by Bush and House Democrats stalled in the Senate, raising the prospect of a collapse that would have weakened a US economy already in recession.
US automakers are struggling to cut costs after US sales last year fell to 13.2 million units, the lowest level since 1992, as a global credit crunch hurt buyers’ ability to get loans and the slowing economy sapped demand.
Chrysler, the third ranking US automaker, said on December 2 it would run out of cash early this year without the loans. Auburn Hills, Michigan-based Chrysler finished the third quarter with $6.1 billion and needs at least $3 billion to operate, Chief Executive Officer Robert Nardelli told Congress on November 18.
GM’s losses have amounted to almost $73 billion since 2004. Chrysler says its first-half loss, the most recent information available, totaled $1.08 billion.
Chrysler is 80.1 per cent owned by Cerberus Capital Management LP, which also owns 51 per cent of GMAC.
Because it’s closely held, Chrysler isn’t required to release financial results and Chrysler said yesterday it still doesn’t plan to release financial information to the public after getting $4 billion in US loans last month.
The terms of the loans require it to release that information to the Treasury department.
If GM or Chrysler is unable to develop a viable business plan, the US loan terms also allow the funds to be used as so- called debtor in possession funding to keep operating in bankruptcy. Both automakers have said bankruptcy would result in their liquidation because they wouldn’t be able to get such loans from private banks.
