GM financials point toward Bankruptcy (Bloomberg News)

GM Loss Widens to $5.98 Billion as Bankruptcy Looms (Update1)

By Jeff Green and Katie Merx

May 7 (Bloomberg) -- General Motors Corp. said its first- quarter net loss widened to $5.98 billion as sales plunged by almost half, ratcheting up the prospect of a bankruptcy filing by a U.S.-imposed June 1 deadline.

The net loss of $9.78 a share swelled from $3.3 billion, or $5.74, a year earlier, Detroit-based GM said today. Revenue tumbled 47 percent to $22.4 billion, while cash consumption almost doubled from the previous quarter.

The results add to the pressure on GM as it races to cut costs and debt to avoid bankruptcy. With bondholders resisting a plan ordered by the Obama administration to exchange $27 billion in debt for a minority stake in a reorganized GM, the 100-year- old automaker may end up in court.

“If the deadline for proving viability is a few weeks away, these earnings would indicate to me that it’s nearly impossible to get there,” said Kevin Tynan, a New York-based Argus Research analyst who advises selling GM. He said “a clean slate from bankruptcy” may be the best way to return to profit.

GM is ready to go “in and out quickly” should it need to file for bankruptcy, Chief Financial Officer Ray Young told reporters at the automaker’s headquarters. The proposed debt exchange with bondholders is the biggest piece of $44 billion in obligations that GM is working to shrink as it survives on $15.4 billion in emergency federal aid.

Cost Structure

“The first-quarter results reinforce the plan we announced at the end of April to bring our cost structure down aggressively,” Young said.

Excluding some costs, the first-quarter loss was $9.66 a share, or $5.9 billion, GM said. That beat the average $10.97 loss estimate from 11 analysts surveyed by Bloomberg.

The biggest U.S. automaker used $10.2 billion more in cash than it generated from operations, almost twice as much as the consumption of $5.2 billion in the fourth quarter. Cash on hand at the end of March was $11.6 billion, a decrease from $14.2 billion as of Dec. 31, as new government aid partially offset the drain on GM’s reserves.

Young said the cash use was less than GM projected in a February report to the U.S. Treasury, in part because of $3 billion in structural cost reductions in the quarter. He reiterated that GM will need $2.6 billion in U.S. Treasury funds in May and $9 billion more after that.

GM dropped 6 cents, or 3.6 percent, to $1.60 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 50 percent this year for the worst performance in the Dow Jones Industrial Average, and they may be removed, said John Prestbo, the editor and executive director of Dow Jones Indexes.

‘Revenue Implosion’

GM slashed quarterly output by about 40 percent to 903,000 vehicles as demand waned, which accounted for “the revenue implosion,” Young said.

The net deficit included one-time gains from erasing some debt and charges such as $822 million in costs related to the Feb. 20 bankruptcy of its Saab Automobile AB unit, which GM wants to unload. Before today, losses at the company totaled $82 billion since 2004, its last profitable year.

President Barack Obama set the June 1 bankruptcy deadline on March 30, giving GM 60 days to restructure out of court. He rejected the company’s original plan to shed 47,000 jobs this year and cut about $28.5 billion in union and bond debt, saying it wasn’t enough to return the automaker to viability.

Under the survival plan unveiled April 27, GM agreed to kill the Pontiac brand, close two more plants and eliminate at least 7,000 more union jobs by the end of next year. GM said today it expects to cut more salaried and executive jobs, without elaborating.

U.S. Control

GM’s plan envisions that the U.S. would control at least 50 percent of 60 billion shares in a restructured company, and a union-run health-care fund would get as much as 39 percent. Unsecured bondholders would get 10 percent and existing shareholders would get 1 percent, GM said.

Bondholders would receive 225 shares in the new automaker for each $1,000 in principal. When the exchange is complete, GM would do a 1-for-100 reverse split of the stock.

Without support from 90 percent of the bondholders by May 26, GM plans to file for bankruptcy, Chief Executive Officer Fritz Henderson said after unveiling the offer.

Bondholders countered that proposal with a plan calling for GM to give them 58 percent of the equity in the reorganized company. Henderson told reporters earlier this week that the Treasury has indicated it “would not be supportive of shareholding in excess of 10 percent” for the bondholders. GM’s 8.375 percent bonds due in July 2033 fell 0.35 cent to 8 cents on the dollar, yielding 102 percent, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority. Dwindling Sales

The discussions among GM, Obama’s car task force and the bondholders are unfolding against a U.S. auto market that shrank 34 percent last month.

GM reported an adjusted automotive operating loss of $3.9 billion in the first quarter, wider than the $808 million deficit a year earlier.

Each of the automaker’s regions experienced a drop in earnings from a year earlier due to slumping sales, with the $3.2 billion operating loss in North America the worst deficit.

Without a new cost-saving labor agreement, GM’s Canada unit will be liquidated, the Canadian Auto Workers union said today, citing discussions with government officials. CAW leaders told reporters in Toronto they had been ordered back to the bargaining table with GM under a May 15 deadline to reach an accord or lose the possibility of more government aid.

Young said there were sales bright spots in such markets as China, Germany and Brazil, where governments implemented programs to stimulate demand. Results in those countries support GM’s argument in favor of U.S. incentives to promote auto purchases, he said.

“We just need to get this bankruptcy speculation and rumor behind us,” Young said during a conference call. “That’s clearly having an impact on our sales.”

To contact the reporters on this story: Jeff Green in Detroit at jgreen16@bloomberg.net; Katie Merx in Detroit at kmerx@bloomberg.net.

Last Updated: May 7, 2009 16:21 EDT