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GM Posts $6 Billion Loss For First Quarter

Posted: Friday, July 24th, 2009 at 2:22 pm

General Motors Corporation has gone public with their recent plummeting loss, posting a $6 billion loss in the first quarter and that $10.2 billion lost in the first three months of the year. The total revenue drastically dropped by $20 billion.

There was discussion about the company filing for Chapter 11 bankruptcy which, according to Chief Financial Officer Ray Young, appeared to have scared consumers from buying GM vehicles. GM is the largest United States-based automaker and is now facing a government deadline to finish a restructuring plan or they will be forced to go into bankruptcy. The deadline is June 1st of this year.

The loss for the quarter reported by GM was $9.78 per share, comparing with a loss of $3.3 billion, or $5.80 per share, compared to the same quarter a year ago.

There was a 47 percent revenue decrease from $42.4 billion to $22.4 billion in the quarter due to the housing markets’ decline worldwide, particularly in North America and Europe.

Young said that the company’s cutting of structural costs by $3 billion was not enough to counter the 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.”

It is expected that when an automaker company talks of bankruptcy, consumers shop elsewhere due to warranties. There is a guarantee, regardless of what happens with Chrysler and GM, that the United States government will cover warranties. Young said that the Obama administration failed to reveal this until March 30, and in doing so, for most of the quarter, consumers were afraid that GM would not be present to honor such warranties.

He believes that it will take some time to get the word out about the warranties, but that consumers should trust it.

The United States loaned GM $9.4 billion, which offset their cash burn. In April, GM received an additional $2 billion and another $4 billion in December, bringing the total amount loaned by the government to $15.4 billion.

Experts were actually expecting worse losses for the company. Analysts surveyed by Thomas Reuters had predicted a quarterly loss of $11.05 per share on revenue of $20.2 billion.

The restructuring tasks for GM seem impossible to follow before June 1. The list includes a new cost-cutting agreement with its unions, completion of a debt-for-stock swap with 90 percent of its bondholders, closing of factories and job cuts to prove to the government that it can repay its loans.

Currently, the company is in process of selling or phasing out Saturn, Saab and Hummer brands. It has already finalized the decision to rid of Pontiac.

 

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