statism watch

David Gow, The Guardian
March 5, 2009

General Motors today warned it would go bust within 30 days unless the US treasury gives it a further multi-billion dollar loan.

The dramatic warning from America’s biggest car group came after its auditor, Deloitte, raised substantial doubts about its ability to continue operations as a going concern.

These alarm signals were contained in GM’s 480-page annual report for 2008 to the US Securities and Exchange Commission, America’s financial regulator. They further underline the perilous state of the global car industry.

GM has so far received $13.4bn (£9.5bn) in treasury loans and a further $1.6bn in other government loans. Today , effectively holding a gun to the government’s head, it said it could default on this $15bn if it did not receive a further cash injection.

It is seeking a total of $30bn from the Obama administration after racking up $82bn of losses in the last three years, including $31bn last year.

The group, once the world’s biggest carmaker, said it needed $3.5bn cash in 2009 and a further $2.3bn to 2014 to stay alive. The plan it has submitted to Tim Geithner, the US treasury secretary, envisages 47,000 job losses – 26,000 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.

But 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 cautioned that if the treasury did not approve its viability plan and lend it more money “we would be unable to repay amounts outstanding under the treasury 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 it could secure financing to continue operations under the Chapter 11 bankruptcy protection laws.

But the group headed by Rick Wagoner said it had secured waivers from its creditors for an outstanding $6.125bn so far, 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, directly or indirectly, through guarantees,” it added.

GM Europe, meanwhile, poured cold water on reports that it was seeking between £440m and £750m from the British government as part of the €3.3bn rescue plan submitted to the German government last week.

Vauxhall, its UK unit, with plants at Ellesmere Port and Luton, contributes around a quarter of GME’s European business, prompting what industry sources called the entirely speculative calculations. “We have not got to that stage yet,” the sources said. “When the German government has finished reviewing the plan we will submit it to Lord Mandelson [the business secretary] and that will be next week at the earliest.”

It is understood that Vauxhall could apply for a share of the £2.1bn loan facility for the British auto industry approved by the European Investment Bank, the EU’s main lending arm.

Mandelson has indicated 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.

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