GM Says No to $2 Billion Bailout for March

DETROIT – It's not as good as black ink, but General Motors' news that it doesn't need government loan money this month is a sign that it is finally starting to bring its gargantuan expenses under control.

GM Chief Financial Officer Ray Young said Thursday that the struggling automaker's fortunes have improved to the point that it won't need the $2 billion March installment, despite the request the company made less than a month ago.

But Young wouldn't say when the GM might need more help, nor would he say whether it planned to reduce its request for a total of $30 billion in government financing.

General Motors Corp., along with Chrysler LLC, is living on government money as the entire auto industry tries to weather a global recession. In a viability plan submitted to the government Feb. 17, GM said it would need $2 billion in loans this month and $2.6 billion more in April to keep operating.

But Young said GM's restructuring efforts are beginning to take hold, resulting in less spending as U.S. auto sales dropped to their lowest level in 27 years.

"It seems like our companywide cost reduction efforts are moving well, as well as we've been able to defer spending that we previously anticipated in January and February," Young said in an interview with The Associated Press. "I think that's a positive development."

Industry analysts weren't celebrating, but they did credit century-old GM for its restructuring efforts, which include closing 11 factories, cutting 50,000 jobs and slashing structural costs by roughly $12 billion from 2005 to 2008.

Jim Hall, managing director of 2953 Analytics of Birmingham, Mich., said GM has used its crisis to figure out how to manage costs better than at any time in its history.

"It took this horrific event for them to learn it, but now they understand that," Hall said. "It shows they can manage the business better than anyone had thought."

GM's news may not be a tremendous breakthrough, but "it's always nice when they're able to have a tiny bit of good news in an otherwise bleak world," said Pete Hastings, senior analyst with Memphis, Tenn.-based Morgan Keegan & Co.

Young said GM told members of the Obama administration's auto task force Wednesday that it would not need the March installment.

An administration official said the announcement would not change the task force's timeline or approach to restructuring GM and Chrysler. The official spoke on condition of anonymity because the discussions are private.

GM and Chrysler, which has received $4 billion in loans and has requested an additional $5 billion, face a March 31 deadline to complete restructuring plans that include concessions from debt holders and unions.

Critics say both automakers have been slow to cut costs and relied too long on gas-guzzling pickup trucks and sport utility vehicles for profits. Some Republican lawmakers favor letting the companies go into Chapter 11 bankruptcy protection so they can restructure and bring their costs down.

But Republican Rep. Thaddeus McCotter, who represents a district near Detroit, said GM's announcement proves that it has been restructuring for a long time and is seeing the payoff.

"It also shows the other stereotype and myth that was out there, that there was no restructuring going on," he said.

The announcement helped GM's shares, which rose 32 cents, or 17.2 percent, to $2.18 Thursday.

Young said GM's cash burn rate, the amount of spending above revenue, has slowed since the company turned in its viability plan last month. GM burned through $19.2 billion in cash last year on its way to a $30.9 billion net loss.

The auto giant is coming close to spending the $13.4 billion in government loans it received through February. The money, Young said, was used largely to pay parts suppliers, employees and dealers when GM had little revenue coming in due to January production cutbacks across the globe.

"We had very little receipts, but we still had a lot of payments related to prior production and prior sales," he said. "We used that liquidity in order to address basically a lot of expenses that we had."

Young said negotiations are progressing with the United Auto Workers over swapping stock for part of the cash payments that the company is required to make to a union-run trust that will take over retiree health care costs next year. GM already has a deal on other labor cost concessions, but details have not been released.

Under their loan terms, GM and Chrysler must do their best to reduce labor costs so they are equal to Japanese automakers with U.S. factories by the end of this year.

Earlier this week, Ford Motor Co.'s U.S. hourly workers approved changes to their labor contract and agreed to let Ford fund half of its health care trust with stock. The UAW has said the GM deal would be patterned after Ford's.

Ford said Wednesday that the concessions would reduce its total hourly labor cost to $55 this year, still at least $6 higher than Japanese automakers with U.S. factories.

But Young said GM can still comply with the terms of its loans using the Ford deal as a framework.

"We're working through that," he 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."

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