What GM Faces

Wednesday, November 12, 2008

General Motors painted a bleak picture of its financial health in a filing this week with the Securities and Exchange Commission. Here is a sample of some of the pressures bearing down on the company:

The global economic slowdown means many people have stopped buying cars; GM's sales in October fell to their lowest seasonally adjusted rate since 1982. "We do not believe it is likely that these adverse economic conditions, and their effect on the automotive industry, will improve significantly in the near term, notwithstanding the unprecedented intervention by the U.S. and other governments in the global banking and financial systems."

GM is running out of cash. The automaker is going through $2.3 billion a month, up from $1 billion a month earlier this year. "Based on our estimated cash requirements through December 31, 2009, we do not expect our operations to generate sufficient cash flow to fund our obligations as they come due, and we do not have other traditional sources of liquidity available to fund these obligations."

The company reached an agreement with its union workers to shift the cost of retiree health benefits to an independent trust, but that won't happen until 2010.

The credit crisis has forced GM's lending arm, GMAC, to suspend or curtail its loan offerings, "with the result that consumers find it more difficult to finance purchases of new vehicles."

GM itself cannot go to lenders and raise the $2 billion to $3 billion it had hoped in July because of the credit crunch. The lack of financing and the economic downturn have also made it difficult for the company to sell units such as its Hummer division.

Cost-cutting can often lead to more expenses. On Nov. 7, GM said it would scale back production and idle 5,500 factory workers. The company will wind up taking a charge of at least $300 million.

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