GM: Still Trying To Avoid Bankruptcy, but Preparing Anyway
By Michelle Krebs May 7, 2009By Michelle Krebs
DETROIT -- General Motors still hopes to accomplish its restructuring outside of bankruptcy court, but is preparing for bankruptcy nonetheless, most notably by monitoring Chrysler's Chapter 11.
GM's chief financial officer, Ray Young, normally cool, calm and collected, expressed in passionate terms, during his conference call with media and analysts on financial results Thursday, that GM wants to avoid bankruptcy.
"If we go into bankruptcy, it is imperative that we get in and out quickly," Young said, adding the automaker is watching and learning from Chrysler's current Chapter 11 proceedings.
He said GM is addressing cost but the sales and revenue side with continued negative news of possible bankruptcy in the press -- and the prospect of eventual bankruptcy -- could cause a viscious downward cycle from which GM may not be able to recover.
"We need to get GM out of the front page newspaper headlines every day and get this thing behind us out of court or in court," he said. He said GM's internal surveys show that talk of bankruptcy is hurting GM's sales across the globe. Even the customer in Brazil is hesitant to buy a car from a company that might go into bankruptcy, he said. As a result, Young said GM assumes it will lose another 2.2 percentage points of market share in the U.S. this year.
Young insisted GM would get its cost structure in line and reduce its breakeven point so that it can be profitable at industry sales of 10 million per year in the U.S.
"Then we need to make sure the story of GM is not about restructuring but about the great products we're launching...the best products we've launched in the 100-year history of this company."
In response to other questions posed to him, Young said:
- if GM goes into bankruptcy, more production cuts are possible, though "I'm not sure a cold shutdown" of all plants as Chrysler has done through its Chapter 11 proceedings is necessary. He said production planning is dynamic and a day-to-day consideration, depending largely on sales and dealer inventories.
- the percentage of vehicles built in the U.S. for sale in the U.S. would remain the same after the restructuring, despite assertions by the United Auto Workers union to the contrary. The union, which began new contract talks Thursday, charges GM would close U.S. plants and import more vehicles from its low-cost manufacturing sources to fill demand. A letter from the union to Congress claims GM would double imports from Asia and Mexico when U.S. car sales rebound while closing four of its U.S. assembly plants.
- any alliance made with its operations, including GM Europe, would be one in which there would be product development cooperation and other synergies with a partner. Fiat is among the parties interested in GM's European operations, which include Opel and Vauxhall. Young said GM would like to advance some deal regarding GM Europe in this second quarter. "The importance of synergies is critical to maximize value for GM and the other party," he said. GM reportedly plans to own a stake in any operation formed between Fiat and GM's Opel.
- he could not comment on speculation that GM would considering the only regional operation that currently is profitable -- that being its subsidiary covering Latin America, Africa and the Middle East. Young, who once headed GM's Brazil operations, noted the only reason GM sales and market share were not higher in booming Brazil was due to capacity constraints. GM has since boosted production there.
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