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Investors are more likely to look beyond the bad news for updates on the survival plan when General Motors reports fourth quarter results later today.
After all, as the Reuters news agency points out, its fourth-quarter sales dropped 26% and the once mighty firm – now outsold by Toyota – ended the year desperately short of cash and dependent on a US$13.4bn government loan lifeline to remain in business.
Indeed, chief executive Rick Wagoner meets today with president Barack Obama’s autos task force headed by US treasury secretary Timothy Geithner and White House economic adviser Larry Summers – Chrysler’s Bob Nardelli got a grilling on Wednesday.
Analysts surveyed by Reuters Estimates forecast a loss of US$7.40 per share, excluding special items, more than two and a half times the loss on a comparable basis from a year earlier.
But the analysts added that the key to valuing GM’s shares and debt is the progress the company is making in crucial restructuring talks with creditors and the autos task force to slash debt and secure new funding.
“How do we say that losses of billions of dollars and a cash burn rate of a similar magnitude are irrelevant?” Pete Hastings, fixed income analyst at Morgan Keegan asked Reuters. “But what really matters is the funding plan.”
GM lost $21bn over the first three quarters of 2008 and the final quarter was the toughest as a slump in sales that began in the United States turned into a global crisis.
But more important now will be what GM says about its remaining liquidity and options for government funding.
GM chief operating officer Fritz Henderson has said that without the loan payouts from yje treasury on the agreed schedule the automaker would have been run short of the cash needed to finance its operations.
Barclay’s Capital analyst Brian Johnson told Reuters he expected GM would have burned through $7.1bn in the quarter, excluding the first $4 billion it received in late December from the treasury.
“As the international environment weakens, we expect further downside to earnings and cash in 2009,” Johnson said in a note for clients earlier this month, previewing GM’s fourth-quarter results.
GM, like Chrysler, is under pressure to wrap up concession talks with the United Auto Workers union on how to cut funding promised to a healthcare trust fund, something which Ford – yet to ask for government help – has beaten it to.
GM’s has offered the UAW up to $10.2bn in new equity in order to give up a cash claim on half of the $20.4bn it is owed for the trust fund.
Reuters noted that GM’s parallel negotiations with its bondholders have been more difficult because debtholders have been asked to make a deeper concession than the UAW.
Under the terms of GM’s bailout, bondholders representing some $27bn in debt face pressure to swap into equity in a deal intended to cut remaining bond debt to about $9bn.
But bondholders have objected to both GM’s remaining debt load and the higher payout ratio for the UAW.
Reuters also noted that GM’s shares have plunged by 89% over the past year partly in recognition of the risk that either the government-brokered restructuring or a bankruptcy would wipe out most of the automaker’s current equity.
“We continue to believe the government will support GM outside of a bankruptcy,” JP Morgan credit analyst Eric Selle said in a note for clients this week.
GM could win a deal with bondholders to reduce its $27 billion in bond debt by 60%, he said, if the government were willing to offer a debt guarantee.
