Cash Management

GM’s Half Full Showroom

The CFO is relatively optimistic despite the company's $15 billion loss.
Stephen TaubAugust 1, 2008

General Motors Chief Financial Officer Ray Young is clearly putting a “showroom is half full” spin on the struggling auto giant’s latest results. Commenting on the automaker’s whopping $15.5 billion loss in the second quarter, including $9.1 billion of non-cash special items, the finance executive asserted on a conference call: “The second quarter this year has been one of the fastest-changing markets I have ever seen. We’re going to get this quarter behind us and move ahead.”

However, it won’t be easy. GM reported negative operating cash flow of $3.6 billion in the second quarter, and analysts on the call noted that GM has been burning through cash at a rate of $1 billion per month so far this year. Young mostly attributed this to reducing the company’s inventory by nearly 90,000 vehicles to fewer than 800,000. However, he assured investors that the cash burn should be smaller for the rest of the year.

Young also told investors GM had $21 billion in cash, and $5 billion of available through credit lines at the end of June for total liquidity of $26 billion, calling it a strong position. Still, GM’s pool of liquidity sunk by $3 billion from the prior quarter, mostly driven by decreasing auto production in North America. Nevertheless, he reiterated GM’s plans, first announced in July, to bolster its liquidity position by $15 billion through 2009.

Young did confirm that the company needs to keep $11 billion to $14 billion on hand at month’s end to pay its bills and variability in cash flow. This is down from the $20 billion the company previously said it needed to run the business before the economic downturn in the U.S.

The “special” items Young referred to in the call included a $3.3 billion loss attributed to its attrition program in North America, as well as a $2.8 billion adjustment to the Delphi Corp. reserve — a fund set up to pay for pension obligations at the bankrupt company. The special charges also included a $1.3 billion impairment charge related to the company’s investment in GMAC preferred and common stock.

Young said that under current accounting rules, the carmaker was required to remeasure the fair value of the GMAC stock. As a result, the carmaker recorded a second quarter impairment charge of $1.3 billion to reflect the sinking value of the investment. During the first quarter, the fair value write-down was $1.4 billion.

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