- The Washington Times - Friday, February 27, 2009


For General Motors Corp. nothing has stopped the bleeding. Not cutting 50,000 jobs in the U.S. Not closing 11 factories. Not $13.4 billion in government loans.

The teetering company, once the symbol of American industrial might, revealed Thursday that it burned through $19.2 billion in cash last year on its way to a $30.9 billion loss. The century-old automaker said its only hope of living another year is more aid from the government.

GM has continued to spend on a company too big for the market, paying workers when plants are closed and covering other costs such as machinery, marketing, pensions and health care.

Expenses are so high and income so low that GM warned that auditors are reviewing whether it can continue as “going concern.” Auditors are determining whether there is substantial doubt about the company’s ability to stay in business.

To many, though, the doubt has existed for a long time. The company has piled up $82 billion in losses during the past four years, much of it in restructuring charges.

“It’s really a bit of a stamp of notice on something we already recognize,” said Kimberly Rodriguez, restructuring specialist for the audit, tax and advisory firm Grant Thornton LLC. “The fact that they’re into the government for financing in order to maintain viability pretty much says there’s a going concern problem.”

GM executives met for several hours with members of President Obama’s auto industry task force Thursday. Company spokesman Greg Martin said the meeting “was just the beginning of the hard work ahead for GM and the president’s team.”

“We found a genuine willingness among the task force to understand our business, industry challenges, and GM’s restructuring plan,” Mr. Martin said.

The automaker, which reported a $9.6 billion fourth-quarter loss, used up $6.2 billion in those last three months of 2008, including a $4 billion government loan as the company fought the worst U.S. sales climate since 1982. GM shares fell 17 cents, or 6.7 percent, to $2.38 on Thursday.

Chief Financial Officer Ray Young told reporters and industry analysts that GM expects to burn through $14 billion funding its operations this year, which raises the need for more government help.

Much of this year’s cash burn can be attributed to the temporary shutdown of GM plants early in the year, he said.

GM and other automakers took the unprecedented step of shutting down many factories for most of January to stop cars from piling up with low consumer demand. But GM’s size, with 243,000 employees worldwide and 47 factories in the U.S. alone, keeps its fixed costs high.

The automaker expects the entire industry to sell a dismal 10.5 million vehicles in the U.S. this year, down from 13.2 million in 2008. But GM says it can’t break even until U.S. sales reach 11.5 million to 12 million.

“We’re not pleased with a negative $14 billion cash-flow burn, that’s still a very, very sizable amount,” Mr. Young said Thursday. “But at the same time we recognize that the industry conditions in ‘09 are going to remain fairly challenging.”

GM simply has too many fixed costs to make money at low sales volume, and there’s no guarantee it can hold its market share even if U.S. auto sales rebound to 12 million next year, said Kevin Tynan, an industry analyst for Argus Research in New York.

GM ended last year with 21.6 percent of the U.S. market, down 1.6 points from 2007.

The future of the storied company, Mr. Tynan said, rests with the government and how long it is willing to subsidize the cash burn.

“By all intents and purposes, their story has been written already except for the government coming in and throwing more money at them,” he said.

The U.S. auto industry as a whole has high fixed costs and is stuck with them regardless of whether sales drop, said Efraim Levy, a Standard & Poor’s Equity Research analyst.

But once demand returns to cover the costs, the industry can become profitable again, he said.

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