Revenue falls in quarter, For GM they might need bankruptcy

DETROIT — General Motors drew closer to bankruptcy Thursday, acknowledging its revenue fell by nearly half as car buyers worldwide steered away from showrooms for fear that the auto giant would not be around to honor its warranties.

The company lost $6 billion in the first three months of the year. The results were bad enough to bring a warning from Chief Financial Officer Ray Young, who acknowledged the difficulty of climbing out of a steep decline even if the company cuts costs.

"Once you start losing revenue, you get yourself into a vicious circle in which you cannot recover,” he told reporters on a conference call.

GM is living on $15.4 billion in federal loans and faces a June 1 government deadline to finish a restructuring plan or join Chrysler in Chapter 11 bankruptcy reorganization. The company would prefer to restructure out of court, but even its own executives say the obstacles are formidable.

"I think bankruptcy is highly likely, not because the losses are so bad, but because everyone has realized that this company needs fundamental restructuring,” said Douglas Baird, a University of Chicago law professor who specializes in bankruptcy cases. Chapter 11 "seems the best way to clean up the balance sheet, clean up the problems, get a fresh start,” he added.

Young conceded that the second quarter also will be tough for GM because it is shutting many of its U.S. factories for up to 11 weeks to slash dealer inventories. But he expects revenue to bounce back once the automaker gets through inventory cuts.

He said GM is making more money on new products than it did on their predecessors, including the Chevrolet Malibu and Cadillac CTS.

More funds needed
General Motors Corp. spent $10.2 billion more cash than it took in from January through March, mainly because revenue fell by $20 billion from the first quarter of last year, to $22.4 billion.
Young expects GM to need another $2.6 billion in federal loans this month and $9 billion more during the rest of the year.

All the talk about bankruptcy, Young said, is scaring some car buyers away. Detroit rival Chrysler filed for bankruptcy protection last week.

"People are concerned about bankruptcy, and that’s the reason why we want to avoid it if at all possible,” he said.



by the associated press