DETROIT (Reuters) - General Motors Corp said it burned through $10.2 billion in the first quarter as it relied on a federal bailout to ride out a sharp decline in global sales that overwhelmed its cost-cutting efforts.
Revenue dropped by almost half to $22.4 billion as the company cut production by about 900,000 vehicles and worked to run down costly inventories in the United States and Europe.
The results showed the extreme pressure on GM with just four weeks remaining for the embattled automaker to win deals to slash debt and operating costs with its major union and bondholders to avoid bankruptcy.
“Results were awful, as expected, however, GM’s cash burn was even worse than we were expecting,” Kip Penniman of KDP Investment Advisors said in a note for clients.
Chief Financial Officer Ray Young said there was evidence consumers were scared away from GM cars and trucks because of concern the automaker was headed for bankruptcy.
GM cut $3.1 billion in operating costs in the first quarter, including just over $1 billion in North America, but the latest push in a four-year campaign to cut costs failed to keep pace with the plunge in sales.
“You could not offset the revenue implosion that we experienced here,” Young told reporters following release of the quarterly results on Thursday.
GM’s North American operations, where it plans to cut 21,000 factory jobs and close and close more than 2,600 dealerships, posted a loss before interest cost and taxes of $2.5 billion.
European operations, which Italy’s Fiat SpA has proposed taking over, posted a loss on the same basis of $1.2 billion as vehicle sales in the region dropped 29 percent.
GM still hopes to complete a debt restructuring out of court but is readying plans for what it expects would be a quick bankruptcy if that proves necessary, Young said.
He said GM expects to draw on the experience of Chrysler LLC, which filed for bankruptcy last week under the supervision of the Obama administration.
“We are very, very cognizant of this issue of revenue perishability and how consumers react to the threat of bankruptcy,” Young said.
Young said GM would make a decision at the end of this month on whether an offer to extinguish $24 billion in bond debt in exchange for new shares had garnered enough support for the company to avoid a bankruptcy filing.
GM’s global market share fell to 11.2 percent in the first quarter, down from 12.4 percent a year earlier.
GM posted a first-quarter net loss of $6 billion, compared with a loss of $3.3 billion a year earlier. The company has lost $88 billion since its turnaround efforts began in 2005 under former Chief Executive Rick Wagoner.
The losses are expected to mount in the current quarter when GM shuts down U.S. manufacturing plants for up to nine weeks in an effort to run down inventory and lessen its exposure to bankrupt former subsidiary Delphi Corp.
GM is negotiating with Delphi’s bankruptcy lenders and the U.S. government to try to find a way to allow the parts supplier to emerge from bankruptcy after more than three-and-a-half years.
“We would like to have a resolution of Delphi as soon as possible,” Young told analysts and reporters.
GM is facing a government-imposed June 1 deadline to reach agreements to overhaul its operations and cut more than $40 billion in debt. It has taken $15.4 billion in emergency loans from the U.S. Treasury and expects that to rise to $18 billion by the end of the month.
The first quarter was marked by GM’s failure to win backing for a turnaround plan that the U.S. autos task force concluded was too slow-moving to succeed. The Obama administration ousted Wagoner as GM chief executive at the end of the quarter.
Creditors have been looking beyond GM’s results, focusing instead on whether it succeeds in winning debt concessions from its bondholders and the United Auto Workers union.
The automaker said on Thursday that it had not yet reached the deal it needs with the UAW.
It also said the Treasury had not yet agreed to convert half of the loans it has extended to GM into stock in a restructured company, as the automaker has proposed.
Young said GM was back in talks with union representatives and ready to negotiate around the clock to reach a settlement.
The UAW faces pressure to accept GM stock in exchange for about $10 billion the union is owed for a trust fund for retiree healthcare. That would give the union a 39 percent stake in the restructured company.
Under the restructuring plan GM detailed last month, the government would own a majority stake, effectively nationalizing the 100-year-old Detroit-based automaker.
GM shares were down 7 cents or 4.2 percent at $1.59 around midday on the New York Stock Exchange. The company’s pending plan to issue new shares to pay off creditors would dilute the value of the share to less than 2 cents.
Reporting by Kevin Krolicki; editing by John Wallace and Matthew Lewis