A leading ratings agency has said that General Motors will have to go far further than the drastic restructuring announced this week if it wants to get its costs in line with falling revenues, according to the Daily Telegraph.
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The paper said Fitch claims that, even if the ailing car maker achieves all of the estimated US$7bn (GBP4bn) in cash savings expected from the cost-cutting plan by the end of 2006, it will not be enough to return it to profitability.
According to the report, Fitch’s managing director Mark Oline said: “We do expect a continuing cash drain from operations through 2006 and are increasingly concerned with a number of items that could further reduce liquidity.”
The Telegraph noted that GM said on Monday that it would cut 30,000 jobs -about a quarter of its North American factory workforce -and close nine plants.
Oline reportedly said: “The $7billion in estimated cost savings that GM has outlined really is not significantly different from the $6billion that was previously announced.”
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By GlobalDataResolving an industrial dispute at GM’s key supplier, Delphi, is the major issue facing the car maker that could cut into liquidity, he said, according to the Daily Telegraph.
Estimating that a shutdown at Delphi would bring most of the car maker’s key production to a halt, Oline reportedly said GM would probably have to step in and provide financial assistance to bridge gaps between Delphi and its trade unions.
Fears of a crippling strike at Delphi have hammered GM’s bond and share prices since Delphi filed for bankruptcy protection in October and began seeking hefty cost concessions from unions, the paper noted.
Accelerated employee buyouts expected as part of GM’s own restructuring will also tap into the car maker’s liquidity, Fitch reportedly said, adding: “To be able to extract dramatic cost reductions from unions, retirees and suppliers will become increasingly challenging.”
