GM's Fourth-Quarter Loss: $9.6 Billion


Perhaps more important: General Motors' $5.3 billion cash burn for the quarter. Without government loans, it would already be in bankruptcy

At the same time General Motors (GM) Chairman and CEO G. Richard Wagoner Jr. is headed to Washington to meet with President Obama's task force, the auto giant announced a massive loss for the fourth quarter and last year.

GM lost $9.6 billion in the fourth quarter and, perhaps more important, burned through $5.3 billion in operating cash as a global recession pummeled car sales. For the year, GM lost $31 billion including special items for restructuring and other one-time costs. It's the second-biggest loss in the company's history.

But these days, profits aren't the real measure for GM. The company is struggling to bring in enough cash to pay its bills, and without loans of $13.4 billion from the U.S. Treasury, GM would already be in bankruptcy. The company burned through $19.2 billion in operating cash flow last year and ended the year with $14 billion in cash, just above the bare minimum to keep its plants going.

While GM has already received $13.4 billion in loans, the company said in a presentation to Treasury on Feb. 17 that it will need as much as $16.6 billion more. The company will need about $9 billion more going forward and another $7.5 billion if auto sales remain as weak as they have been for an extended period. GM Chief Finance Officer Ray Young said GM should minimize its cash burn this year, but he didn't give a forecast.

Sales Forecast Remains Bleak

So far, that's where things are headed. January was another poor month for car sales and analysts and dealers say February doesn't look much better. "We expect these challenging conditions will continue through 2009, and so we are accelerating our restructuring actions," Wagoner said in a statement.

While last year's loss was only GM's second-largest, it's more significant than the $43.3 billion loss in 2007. That year's massive shortfall came largely from a $38.3 billion noncash charge for lost tax credits. This year's loss results in massive cash burn.

And it stems from a big shortfall in car sales. GM's revenue dropped $31 billion to $149 billion for the year. Revenue sank 50% to $31 billion in the fourth quarter alone.

As is often the case, GM had plenty of problems at home where revenue in North America fell almost $9 billion to $19.3 billion. But even GM's successful businesses in Asia and Latin America are struggling. GM lost $1.1 billion combined in those areas, with $917 million of that red ink coming from Asia-Pacific.

Huge Debt Burden

All of this complicates GM's turnaround efforts. The company needs more government loans to stay out of bankruptcy. But at the same time, GM must restructure its balance sheet and shrink long-term debts and retiree obligations that have sapped profits and cash for new products for years.

GM has about $62 billion in debt, including $20 billion in cash owed to a union-led trust fund that will pay for health care for United Auto Workers employees and retirees starting in 2010. GM has been trying to negotiate a deal to give the UAW $10 billion in cash and the rest in stock. Ford Motor (F) got a similar deal on Feb. 23, so GM may be able to reduce that debt.

GM is also trying to shrink its $27.5 billion in unsecured debt to about $9 billion. The company is negotiating with bondholders. The bondholders may accept a deal, but they may end up with no more than 30¢ on the dollar in cash and the rest in stock, according to a source close to negotiations.

But here's the problem. Even if GM gets its needed reductions from the UAW and creditors, the company will simply replace those debts with about $30 billion in government debt. If the bondholders draw a tough line, GM could end up with debts approaching $80 billion, Deutsche Bank (DB) analyst Rod Lache said in an interview earlier this month.

GM has another potential problem. The company said its pension plan was underfunded by $12.4 billion at the end of the year. That means if the stock market doesn't rebound and help GM's pension fund investments, it could have to plow roughly $12 billion into the plan in 2013 and 2014.

Barring a quicker than expected recovery, GM has a very long, tough road ahead.

Welch is BusinessWeek's Detroit bureau chief.

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