Experts: GM's $6B loss is worse than expected

5/8/2009

DETROIT - General Motors Corp. lost $6 billion in the first quarter and its revenue fell by nearly half as car buyers worldwide steered clear of showrooms out of fear that the wounded auto giant may go bankrupt and stop honoring its warranties.

The Detroit company also said it spent $10.2 billion more cash than it took in from January through March, mainly because revenue dropped by a staggering $20 billion, or 47 percent.

Chief Financial Officer Ray Young said GM expects to need another $2.6 billion in government loans this month and $9 billion during the rest of the year. The largest U.S.-based automaker is living on $15.4 billion in federal loans and faces a June 1 government deadline to finish a restructuring plan or enter Chapter 11 bankruptcy protection.

Mr. Young said talk of bankruptcy is scaring some consumers away from buying GM vehicles, but the government is now guaranteeing GM car warranties. Detroit rival Chrysler LLC filed for bankruptcy protection last week.

GM's quarterly loss amounted to $9.78 a share, compared with a loss of $3.3 billion, or $5.80 a share, in the year-ago period.

Revenue dropped to $22.4 billion from $42.4 billion because of declining sales worldwide, mainly in North America and Europe, the company said.

Although the company cut structural costs by $3 billion, Mr. Young said that wasn't enough.

GM ended the quarter with $11.6 billion in cash, down from $14.2 billion on Dec. 31.

"Results were awful, as expected. However, GM's cash burn was even worse than we were expecting," Kip Penniman, a corporate bonds analyst with KDP Investment Advisors in Montpelier, Vt., wrote in a note to investors.

Mr. Young conceded that the second quarter will be tough for GM because it is shutting many of its U.S. factories for up to 11 weeks to further slash dealer inventories. But he said GM revenue will bounce back once it gets through inventory cuts and bankruptcy talk. He said GM is making more money on new products.