General Motors Corp. says its restructuring plan is starting to take hold, improving the automaker’s fortunes at least to the point that it won’t need a $2-billion government loan that it had requested for March.
Detroit (AP) — General Motors Corp. says its restructuring plan is starting to take hold, improving the automaker’s fortunes at least to the point that it won’t need a $2-billion government loan installment that it had requested for March.
Chief Financial Officer Ray Young said Thursday that GM formally told the Obama administration’s autos task force that it wouldn’t need the money this month. But in an interview, Young would not say when the struggling automaker would need more government money or whether it would reduce the size of its loan request.
“It seems like our companywide cost reduction efforts are moving well, as well as we’ve been able to defer spending that we previously anticipated in January and February,” Young said. “I think that’s a positive development.”
GM, which is living on $13.4 billion in government loans, has requested an additional $16.6 billion as it tries to weather the worst auto sales slump in 27 years.
Young said that GM was continuing to calculate its cash balances and that it planned to update the task force on when the company might need more money.
“We’re working through the forecast right now,” he said. “We’re not going to slow down in terms of our companywide cost reduction initiatives. We continue to look toward deferring expenditures as much as we can in order to avoid having to draw more liquidity.”
GM’s shares rose 32 cents, or 17%, to $2.18.
Young said GM’s cash burn rate, the amount of spending above revenue, has slowed since the company submitted a viability plan to the government Feb. 17.
“The cash burn that we thought we were going to have in January and February is not as high. Clearly we still have a cash burn,” he said, attributing the burn rate to a lack of revenue from the company shutting down many of its factories for the month of January.
GM burned through $19.2 billion in cash last year on its way to a $30.9-billion loss.
Young would not say whether GM would need another government loan draw in April.
In its viability plan filed Feb. 17, GM asked for $2 billion in March and $2.6 billion in April. It would not need any more money until 2011, when a $4.5-billion revolving line of credit comes due. The company also says it may need as much as $7.5 billion more if the economy doesn’t improve, for a total of $30 billion by 2011. It plans to start repaying the loans with $2 billion in September.
GM is coming close to spending the $13.4 billion in government loans it received through February. The money, Young said, was used largely to pay parts suppliers, employees and dealers when GM had little revenue coming in because of January production slowdowns across the globe.
“We had very little receipts, but we still had a lot of payments related to prior production and prior sales,” he said. “We used that liquidity in order to address basically a lot of expenses that we had.”
Young also said in the interview that GM’s new contract with the Canadian Auto Workers union, ratified Wednesday by the membership, comes very close to closing the cost gap that GM has with foreign automakers that have U.S. factories.
The company, under the CAW agreement, agreed to keep 20% of its North American manufacturing volume in Canada. The agreement includes a wage freeze to September 2012, the elimination of an annual bonus and a reduction in paid time off, among other concessions.