DETROIT (Reuters) - General Motors Corp GM.N reported a $15.5 billion quarterly loss on Friday as North American sales dropped by 20 percent and resale prices for SUVs coming off lease plunged.
GM shares fell as much as 11 percent in reaction to the automaker’s announcement of the much bigger-than-expected quarterly loss, the third-largest in its 100-year history.
The No. 1 U.S. automaker burned through $3.6 billion in cash in the quarter as it cut factory output by 27 percent in response to an accelerating downturn in its home market that has hammered sales of its trucks and SUVs.
GM executives declined to say how much cash the automaker expects to burn in the second half of this year but said the company needs a minimum of $11 billion to $14 billion to run its global operations.
GM ended the second quarter with $21 billion in cash and $5 billion in undrawn credit. It has since drawn down a revolving loan facility by $1 billion.
“GM does not face imminent liquidity concerns but we think will need to raise liquidity over the next 12 to 18 months,” J.P. Morgan analyst Himanshu Patel said in a note.
GM has said it has the cash needed through 2009 even assuming industry-wide U.S. auto sales drop by some 13 percent this year and hold flat next year, as many analysts now expect.
Chief Financial Officer Ray Young said GM is on track to free up $15 billion in liquidity with cost-cutting, asset sales and new borrowing under a July plan intended to assure investors that the automaker can ride out the downturn.
“The second-half cash flows are fully baked into our plan,” Young said on a conference call.
But after losses of $51 billion over three years and a drop in its share price to 54-year lows, GM is exposed to the risk of a further slowdown in the U.S. market, analysts said.
GM sales figures for July, released after earnings, showed that the market slide gathered momentum at the start the current quarter. July sales dropped 27 percent from a year earlier compared with a 16 percent decline in the first half.
“There is a long list of things they need to do,” Calyon Securities analyst Mark Warnsman said. “It is all about managing for cash at this point.”
LOSS DEEPER THAN ESTIMATES
GM’s net loss was equal to $27.33 per share, compared with a profit of $891 million, or $1.56 per share, a year earlier, reflecting a sharp drop in demand for the light trucks that represent about 60 percent of its sales.
The company took $9.1 billion in charges, including $4.4 billion for restructuring and buyouts of U.S. factory workers and $2.8 billion for its exposure to bankrupt former parts unit Delphi Corp DPHIQ.PK. GM also wrote down $1.3 billion of its equity interest in GMAC, its former finance unit.
Revenue fell to $38.2 billion from $46.7 billion.
Excluding charges, GM lost $11.21 per share. That was more than four times the $2.67 a share that Wall Street analysts expected, as tracked by Reuters Estimates.
GM’s global auto sales dropped 5 percent and it lost $4 billion on its auto operations before charges as record gas prices sank demand for trucks and SUVs.
GM, like rival Ford Motor Co F.N, incurred large losses for light-truck and SUV leases.
Under lease contracts, automakers and their finance companies rent vehicles to consumers and sell the used vehicles at wholesale auctions when the leases expire.
But the drop in demand for SUVs this year has been accompanied by a plunge in their resale value by 25 percent and more as consumers flock to more fuel-efficient passenger cars.
GM said declining lease values at GMAC depressed its second-quarter results by nearly $2 billion.
Shares of GM were down almost 6 percent at $10.46 in afternoon trading and remain down 55 percent since the start of the year. The shares bounced back from a 54-year low of $8.82 in mid-July after the automaker outlined its plans to raise liquidity.
But credit markets have priced in deeper risks for GM over the same period. GM bonds traded at record lows of less than 50 cents on the dollar on Friday after Standard & Poor’s cut its rating on GM and said it expected it to burn through $16 billion in cash this year.
The cost to insure GM’s debt against default jumped to record highs. Five-year credit default swaps on GM’s debt jumped to 41.5 percent of the sum insured, from 38.35 percent on Wednesday, plus annual premiums of 5 percentage points, according to Markit Intraday.
About 90 percent of the 19,000 GM factory workers who took buyouts had left the GM’s payroll by the second quarter. But GM will face charges this quarter from a just-launched buyout program intended to cut about 5,000 white-collar jobs.
Tim Ghriskey, chief investment officer with Solaris Asset Management, said GM’s cash burn could deepen if the economy worsens but said the automaker was showing a new urgency.
“The Detroit automakers have had their heads in the sand for a long time, but they seem to have pulled them out now and are reacting and reacting quickly,” Ghriskey said.
(Additional reporting by Poornima Gupta, Ben Klayman in Chicago)
Reporting by Kevin Krolicki; Editing by Dave Zimmerman and Steve Orlofsky
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