GM Confident Of Repaying $16 Billion Loan If US Economic Recovery Continues

The largest automaker of the United States – General Motors Co, said that it would be able generate enough cash by the end of the year to pay off a $16 billion loan if the US economy continues its rebound after the novel coronavirus pandemic shock and if there are no further production shutdowns for the auto industry.

“Obviously, it is still a very fluid situation as you know and we’re watching the virus, the economy and its impact on the overall industry very closely,” the GM’s Chief Financial Officer Dhivya Suryadevara told reporters.

This comment was made by Suryadevara after a smaller-than-expected loss for the second quarter was reported by the company, driven by a solid gain in sales of its high-margin pickup trucks and aggressive cost-cutting measures that helped the company to offset some of the impact of the shutdown of its business and North American plants for a period of eight weeks out of the 13 weeks available for the quarter.

“We consider this a quite impressive accomplishment, and (it) speaks to the structural improvements in the business today versus prior years,” Credit Suisse analyst Dan Levy wrote in a client note.

While not providing any earnings forecast for the complete year, GM said that it had $30.6 billion in cash at the end of the second quarter.

A total cash flow of between $7 billion and $9 billion during the second half of the year should be generated by GM is there is continued recovery of eh US economy, Suryadevara told reporters.

Under such circumstances, it would be possible for the company to rep[ay by  the end of the current year its $16 billion revolving credit line, but which again will depend on the US economic recovery and annual industry-wide US new vehicle sales of 14 million units this year.

But the recovery of the US economy and that of GM is now in doubt because of a spike in Covid-19 cases across southern and southwestern US states.

There has been an unexpected increase in the number of Americans filing for unemployment benefits according to last week’s data of the weekly jobless claims numbers from the Labor Department. This was a first in almost four months which suggested that the growth in the labor market was slowing down amid the resurgence of the pandemic in the US and fall in demand.

There were signs of recovery in its retail sales during the quarter, GM said, which improved from a drop of 35 per cent year on year in April to a drop of 20 per cent in May and June year on year.

All of the US full-size pickup truck and full-size SUV plants are back at three shifts and the company was “working all avenues” to boost US dealer inventories, GM said.

Production of light-duty full-size pickups at its Fort Wayne assembly plant will be increased by 1,000 units a month starting in September, GM also said.

(Adapted from Reuters.com)

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