General Motors is teetering on the brink of financial chaos. GM says that its cash on hand is being depleted to levels where it will no longer be able to operate unless it gets $2B USD in additional loans at the end of March.
GM is pleading with the government to give it an expanded bailout, while President Obama and his staff are considering cutting GM off and letting it go bankrupt. GM has warned in the past that it cannot survive bankruptcy, and now it is "warning" the government yet again that it will go bankrupt without intervention and of the consequences that would have on the economy.
Its auditors are growing increasingly antsy as its losses pile up. They have issued a statement saying they have "substantial doubt" that GM will be able to continue to pay its debts. Initially they demanded GM repay $6B USD of credit, based on GM's announcement that it could go bankrupt and the company's growing financial problems. However, GM has brokered a deal with them to stay their hand while it seeks $30B USD in federal aid.
After losing $30.9B USD in 2008, GM's business units are in freefall. Sales have plunged by millions of units and the company is burning through billions in cash quarterly. With such a bleak outlook, it correctly warned that auditors Deloitte & Touche would question its ability to make payments, which according to its recent statements, they did.
The information was revealed in reports to U.S. Securities Regulators and a 25-page plea to the government. The plea explains GM's perspective that it is facing insurmountable hardship from tight credit, troubled suppliers, and sinking demand. GM hopes that the government will come to its aid, bailing it out once again.
GM is slashing brands left and right, but can't seem to stop its losses. Even if GM manages to muster enough cash to sustain its operations, it may still go bankrupt at the start of June, when one of its $1B USD convertible debentures matures. If it cannot find additional funds to make this payment, it will be forced into bankruptcy.
GM says that a bankruptcy would result in a liquidation of its assets -- in other words there would be no reorganization and no more GM. It insists that restructuring would be hopeless and consumers would be even less likely to buy from it and that it lacks enough assets to finance a full reorganization.
In order to even have its request for assistance considered, President Obama and his auto task force have demanded that GM convince the United Auto Workers and bondholders to reduce its debt load in order to show that it can be financially viable. GM writes in the annual Securities Regulators report, "Our future is dependent on our ability to execute our viability plan. If we fail to do so for any reason, we would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under the U.S. bankruptcy code."
GM's future is now largely in the hands of automotive debt owners. Its creditors may begin to slash the credit lines of its suppliers, which could further damage GM's sales and production. Further, the creditors are opposed to the government plan, which asks them to convert $27B USD of the company's debt -- approximately a third of it -- to equity. They say they want government guarantees on their repayment of the remaining debt or they will make no deal. Government officials thus far have refused to make this guarantee as they don't want to be forced to pay these billions out of taxpayers' pockets if GM folds.
Globally GM's sales are down 24 percent,from a peak in January 2008 and in the U.S. they are down over 40 percent from their peak in 2007. GM has lost $82B USD since 2005. It says it may lose $1B USD for its trouble Saab unit, alone. GM recently started reporting Saab's revenue separately and hopes to sell the unit, if someone wants to buy it.