General Motors (GM) on Thursday warned it would go bust within 30 days unless the United States Treasury swiftly gives it a further multibillion-dollar loan. The dramatic warning from America’s biggest car group came after its auditors, Deloitte & Touche, raised substantial doubts about its ability to continue as a “going concern”.
It coincided with an admission that GM paid Rick Wagoner, its chief executive, $15-million last year — mainly in now-worthless stock options — despite losing almost $31-billion.
These alarm signals prompted the European commission to offer to convene a crisis summit of at least six EU governments, including Britain, which is home to GM’s Vauxhall brand and two plants at Ellesmere Port and Luton.
Vauxhall is considering making a request for several hundred million pounds from the government and the European Investment Bank under a €3,3-billion rescue plan submitted to Germany by GM Europe. But business secretary Lord Mandelson, who has yet to receive the request, is wary and Britain helped to water down an EU ministers’ statement on the crisis that France dismissed as inadequate.
The White House said it was “working round the clock” to produce “the most thoughtful approach possible to the situation”. GM’s stock fell 15% in early New York trading.
The US warnings were contained in GM’s delayed 480-page annual report for 2008 delivered to the Securities and Exchange Commission, America’s financial regulator. It included a 25-page discussion of the growing risks facing the group, which warned that it could default on its debts, breach its banking covenants and go under even in protected bankruptcy.
The warnings further underline the parlous state of the global motor industry, with American car sales set to decline by a half to just 8,5-million and several other car firms likely to go under.
GM has received $13,4-billion in US Treasury loans and a further $1,6-billion in other government loans and, holding a gun to the government’s head, said it could default on this $15-billion without a further cash injection.
It is seeking a total of $30-billion from the Obama administration after racking up $82-billion losses in the past three years, including $31-billion last year. The group, once the world’s biggest car maker, said it needs $3,5-billion cash in 2009 and a further $2,3-billion through 2014. The plan it has submitted to Tim Geithner, the US Treasury Secretary, envisages 47 000 job losses, 26 000 of them outside the US.
“If we are not successful in obtaining the additional funding necessary to execute our restructuring plan … we would be required to take additional actions to continue operations,” its SEC filing said.
The report added: “However, there can be no assurance that these actions, such as further reductions in productive capacity, hourly and salaried headcount, employee compensation and benefits or capital expenditure and engineering spending, would be sufficient to prevent the need for us to potentially seek relief through a filing under the bankruptcy laws in the US and other jurisdictions.”
GM further cautioned that if the Treasury did not lend it more money “we would be unable to repay amounts outstanding under the UST loan facility or other indebtedness as they become due which would cause us to default”.
It could then breach its banking covenants and declare itself bankrupt — with no guarantee even then that it could secure financing to continue operations under Chapter 11 bankruptcy protection.
But the group said it had so far secured waivers from its creditors for an outstanding $6,12-billion following the auditors’ statement, in the event that the Treasury helped it out again. “We believe that only the US government can provide such financing through guarantees,” it added.
GM Europe, meanwhile, dismissed reports that it is already seeking between £440-million and £750-million from the UK government as part of the €3,3-billion German rescue plan. Vauxhall contributes about a quarter of GME’s European business, prompting what industry sources called the entirely speculative calculations.
“We have not got to that stage yet,” one source said. “When the German government has finished reviewing the plan we will submit it to Lord Mandelson and that will be next week at the earliest.”
Mandelson has indicated that he is willing to support Vauxhall and its two plants, both of which have been excluded from the three GME is seeking to close in Europe — but the price he extracts could be savage downsizing. — guardian.co.uk