In a stunning surprise, General Motors is telling the Obama Administration it won’t need an additional $2 billion in federal aid, this month, because its restructuring program is beginning to take hold.
What remains unclear is whether GM is simply hoping to delay the next bailout package or will no longer need it, reducing the overall size of the aid package required to keep the automaker going.
“It seems like our company-wide cost reduction efforts are moving well, as well as we’ve been able to defer spending that we previously anticipated in January and February,” Chief Financial Officer Ray Young told the Associated Press. “I think that’s a positive development.”
The automaker has already received $13.4 billion in government loans, and it had requested another $16.6 billion. To get the additional sum, GM will have to prove to the satisfaction of the White House’s new automotive task force that it can be a viable and ongoing enterprise, something that has come under increasing doubt, in recent days.
Just last week, GM’s own auditors, Deloitte & Touche, issued a harshly-worded assessment, published in the automaker’s annual report, cautioning that there was “substantial doubt” about the company’s long-term viability.
The fact that GM is now delaying a government handout could be seen as a sign that it is in better shape than originally forecast, particularly by a group of critics, led by defeated presidential candidate and Arizona Senator John McCain, who declared that, “The best thing that could probably happen to General Motors, in my view, is they go into Chapter 11,” during an appearance on the political talk show, Fox News Sunday.
How GM is able to meet its obligations without the latest, $2 billion payment is unclear, though Young said, “The cash burn that we thought we were going to have in January and February is not as high” as originally anticipated.
The giant automaker has been desperately slashing spending – taking measures that range from closing underutilized plants to dropping its long-running sponsorship of public television documentarian Ken Burns. The United Auto Workers Union, meanwhile, has agreed to provide a package of concessions similar, but not identical, to those already granted Ford Motor Co. GM also hopes to get union approval to pay half of the money owed the UAW’s VEBA health program in the form of stock, rather than cash.
The terms of the original federal bailout require that labor costs be brought into line with GM’s non-union, foreign-owned competitors. “We’re working through that,” CFO Young said. “There are other things that we can work on with the UAW in terms of further closing the gap, and a lot of that’s related to improving productivity further.”
This is good news if it’s true. I must admit, I checked my calendar to make sure it wasn’t April 1st when I first read it.