U.S. Says GM's Plan Overly Optimistic
30 März 2009 - 6:30AM
Dow Jones News
The General Motors Corp. (GM) restructuring plan submitted to
the U.S. government isn't viable and contains overly optimistic
assumptions on market share and price, Obama administration
officials said Sunday.
While GM "has made meaningful progress in its turnaround plan
over the last few years, the progress has been far too slow,
allowing the company to continue to lag the best-in-class
competitors," according to Obama administration documents analyzing
GM's restructuring.
"However, it is important to recognize that a great deal more
progress needs to be made, and that GM's plan is based on fairly
optimistic assumptions that will be challenging in the absence of a
more aggressive restructuring," the documents said.
The White House released a five page summary that addresses
viability of GM's restructuring plan submitted to the U.S.
government on Feb. 17, 2009.
The summary said GM not met conditions of the loan agreement but
"it is strongly believed, however, that such a substantial
restructuring will lead to a viable GM." GM CEO Rick Wagoner will
step down as part of this process. In addition, the Obama
administration has said a quick and prearranged bankruptcy filing
may be the best path for GM to restructure.
The Obama administration said it will provide an unspecified
amount of working capital to GM for 60 days "to develop a more
aggressive restructuring plan and a credible strategy to implement
such a plan."
GM and Chrysler LLC have a Tuesday deadline to show that they
are on the road to viability. The auto makers received $17.4
billion in government assistance last year. GM is seeking $16.6
billion more, and Chrysler wants $5 billion more.
"General Motors is in the early stages of an operational
turnaround in which the company has made material progress in a
number of areas, including purchasing, product design,
manufacturing, brand rationalization and its dealer network," the
White House said.
GM made progress by revamping its global purchasing agreements,
refining its vehicle product design process, creating greater
manufacturing flexibility and streamlining its various brands by
divesting or shutting down Saab, Saturn and Hummer, the White House
said.
The administration faulted GM for its assumptions in its
business plan, saying its projections are too optimistic for market
share, price, brands and dealers, outlook for its European
operations, product mix and legacy costs.
"As a result, the president's designee has found that General
Motors' plan is not viable as it is currently structured," the
White House said. "However, because of GM's scale, franchise and
progress to date, we believe that there could be a viable business
within GM if the company and its stakeholders engage in a
substantially more aggressive restructuring plan."
The report took issue with GM's projections for market share. It
said GM has been losing 0.7% per year for the last 30 years.
"Yet, in its forecast, GM assumes a much slower rate of decline,
0.3% per year until 2014," the report said. That slower rate of
decline comes even though GM's plans for "reducing fleet sales and
shuttering brands which represent a loss of 1.8% market share, of
which only a fraction will be retained."
On cash flow, the report said "even under the company's
optimistic assumptions, the company remains break even, at best, on
a free cash flow basis throughout the projection period, thus
failing the fundamental test of viability."
It said under its own plan, GM generates $14.5 billion of
negative free cash flow over its six year forecast period.
"Given the highly challenging current market, the company is
already behind plan in its overall volume expectations and market
share for calendar year 2009," the report said.
"Since the company has built a plan with little margin for
error, even slight swings in its assumptions produce significant
and ongoing negative cash flows."
The administration said GM failed to meet three key conditions
required by March 31, including modifications to its labor
agreements, changes to a retiree health care trust fund, and a
restructuring with bondholders.
-By Rob Wells, Dow Jones Newswires; 202-862-9272;
Rob.Wells@dowjones.com