General Motors has just confirmed that it will draw an additional $2 billion in U.S. Treasury loans to maintain adequate liquidity, as the company continues tense negotiations with bondholders and unions about the concessions needed to revise its business plan.
President Obama’s Auto Task Force rejected GM’s February submission last month as “not viable” because it didn’t clean up its balance sheet enough and gave GM until June 1 to come up with a better plan, less encumbered with fixed costs and debt.
The latest bridge loan means taxpayers have now lent GM $15.4 billion, a relatively small – some say paltry — sum compared to the hundreds upon hundreds of billions given to the financial institutions that are the root cause of the current global Great Recession.
While the need for the additional funding of $2.6 billion was contained in GM’s February “viability report” to the U.S. Treasury, Fritz Henderson, GM’s CEO, in his last press conference a week ago, was non-committal about GM’s need for more cash. In March, the company surprised everyone by not taking a projected $2.3 billion loan, saying that its cost cutting and cash flow were better than expected. Considering the timetable facing Chrysler whose deadline is next week, Henderson said, “I would expect (GM) could pick up the pace in the next couple weeks.”
Perhaps the timing is coincidental, but just yesterday GM announced drastic production cutbacks and layoffs, ranging from one to nine weeks, for virtually all of its North American manufacturing plants. Since auto companies book the revenue on vehicles when they leave the plant gate on their way to dealers, production cuts automatically equate to lost revenue.
The announcements yesterday were a bitter foretaste of what a GM bankruptcy will look like. So the closings no doubt garnered the attention of state and national politicians, as media reports and TV coverage described or showed the dire consequences of shutting down so many plants. Thousand of suppliers will also be negatively affected. (more…)