GM posts deep loss, auditors may question viability

DETROIT Thu Feb 26, 2009 4:45pm EST

1 of 4. A flag flies in front of a broken sign at a General Motors dealership in Denver, February 26, 2009.

Credit: Reuters/Rick Wilking

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DETROIT (Reuters) - General Motors Corp posted a loss of nearly $31 billion on Thursday for 2008 and said its auditors were likely to cast doubt on its viability as it seeks an expanded federal bailout to stay afloat.

GM burned through $5 billion in the fourth quarter and ended the year reliant on the first $4 billion in loans from the U.S. Treasury. Quarterly revenue plunged by more than a third to $30.8 billion.

The automaker, which asked for up to $30 billion of U.S. government aid, also warned that its pension plans were underfunded by about $12.4 billion as of the end of 2008.

GM's loss for 2008 was the deepest among Detroit-based automakers as industry-wide auto sales dropped to 16-year lows. Ford lost $14.6 billion. Chrysler, controlled by private equity firm Cerberus Capital Management, lost $8 billion.

The grim results came as GM Chief Executive Rick Wagoner and other executives met with members of the autos task force headed by U.S. Treasury Secretary Timothy Geithner and White House economic adviser Larry Summers.

"They are in fact-gathering mode right now, and so we are here in order to respond to their questions," GM Chief Financial Officer Ray Young told reporters on a conference call from Washington ahead of the meeting on GM's aid request.

Shares of GM, which have lost almost 90 percent over the past year, were down 1.6 percent at $2.51 at midday.

GM said it could receive a "going concern" notice from auditors when it files its annual report for 2008 with U.S. securities regulators by the middle of March.

GM, which took $6 billion in charges to shut down North American plants as sales tumbled, posted a loss of $30.9 billion for 2008. That was the second-largest loss for the 100-year-old automaker behind the $38.7 billion loss for 2007.

Over the past four years, GM has lost $82 billion and cut 92,000 jobs. The combined loss is equivalent to about $56 million a day since the start of 2005.

GM's auto operations burned $19 billion in 2008 and the company expects to burn through another $14 billion this year as it cuts output to run down inventories of unsold cars.

GM ended the year with $14 billion in cash, including the first $4 billion in taxpayer-backed loans.

S&P equity analyst Efraim Levy said GM's cash burn forecast for this year could prove too low because of the drop in sales and pressure on the supply base.

"It reinforces for us the notion that GM will need multibillion government assistance to continue as a going concern," Levy said in a note for clients.

The automaker has received $9.4 billion from the U.S. government this quarter and has said it needs additional funding as soon as next month to avoid bankruptcy.

'CONTAGION' EFFECT

GM's fourth-quarter net loss widened to $9.6 billion from $722 million a year earlier.

Dennis Virag, president of Automotive Consulting Group, said GM had a chance to restructure under federal oversight if the recession does not deepen beyond its forecast.

"If the economy does not further erode and if we do see a pickup in the second half of the year, GM could foreseeably correct the situation with government funding," he said.

Analysts say the key to valuing GM's shares and debt is the progress the company is making in restructuring talks with creditors, including the United Auto Workers union.

Existing shareholder equity could be sharply diluted as bondholders and the union are offered shares in a recapitalized company in an attempt to reduce GM's cash drain from debt.

GM, like its smaller rival Chrysler, faces pressure to wrap up concession talks with the UAW on how to cut funding promised to a healthcare trust under the terms of the federal bailout.

GM has offered the UAW up to $10.2 billion in new equity in order to give up a cash claim on half of the $20.4 billion it is owed for the trust fund.

Ford reached a deal this week to restructure its own retiree healthcare debt to the union on similar terms.

But GM's parallel negotiations with its bondholders have been more difficult. GM bondholders have been asked to take a payout equal to just $9 billion of the $27 billion that they are collectively owed.

Representatives of the debt holders have said GM's plan does not go far enough to reduce debt and have asked for steps to safeguard their remaining investment in the company.

Young said GM could not comment on its negotiations with bondholders ahead of an end-March deadline to launch the debt exchange. "We are getting to a more sensitive stage in terms of the whole bond exchange process here," he said.

(Reporting by Kevin Krolicki and David Bailey; Editing by Derek Caney and Matthew Lewis)

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