Michigan-based General Motors Corporation (GM) is the largest automobile manufacturer in the world and is one of the leading U.S. automakers apart from Ford and Chrysler. The company also has substantial exposure to financial services. The companys business is segregated into automotive (over 90% of revenue), and financing and insurance operations (10%). The automotive business is divided into four regions: GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM) and GM Asia-Pacific (GMAP). The finance division consists of General Motors Acceptance Corporation (GMAC), and other financial services. The company has sold off 51% interest in GMAC. Since the GMAC transaction, GM controls 49% ownership in GMAC using the equity method. GM has grown by drawing upon technological expertise that has enabled the development of new vehicles with advanced features for the global auto market. GM is also one of the largest U.S. exporters of cars and trucks, with a significant global presence. It has manufacturing operations in 34 countries and its vehicles are sold in 140 countries. The company continues to leverage numerous alliances in order to expand its global scale by capitalizing on low-cost opportunities available in different regions.

GM operates in a highly competitive environment with other foreign and domestic manufacturers such as Chrysler LLC, Ford Motor Company, Toyota Motor Corporation, Honda Motor Co., and Nissan Motor Co. General Motors had plans to take over Chrysler LLC that was stalled on liquidity grounds. GM owns 49% of the loss-making GMAC, with the remainder being owned by Cerberus Capital Management LP. Cerberus also owns a majority stake in Chrysler and has reportedly been in talks about selling the Chrysler auto operations to GM, possibly in exchange for a part of GMs stake in GMAC. Over the last few years, GM and other domestic automakers have given up their market share to foreign rivals. The global automobile market is growing, especially in developing economies such as China and India. While GM has the leading market share in the U.S., some of its competitors have greater market shares in other countries where GM also operates. Industry-wide manufacturing overcapacity is putting pressure on GM as also on OEMs such as Ford and Chrysler. This overcapacity is expected to continue its negative impact on vehicle pricing, market share and operating results. It also presents a significant risk to the companys ability to enhance per vehicle revenue.

GM is at a disadvantage compared to its competitors owing to huge pension and health care costs. The company provides pension, health care and life insurance benefits to more than 400,000 retirees and their families in the U.S. The company has also agreed to take on $3.4 billion of pension debt from its former subsidiary, Delphi Corp.

Most domestic automakers, including GM, have been offering significant incentives to stimulate sales and keep inventories lean. Furthermore, GM sales prices are hampered by poor resale value. GM cars on average fetch $3000 less per vehicle than their counterparts. Historically, auto sales have tracked consumer confidence closely, which has been falling in recent months.

The Federal Government and GM reached agreement on December 31, 2008 that provided the company up to $13.4 billion in three-year term loans to sustain operations through the first quarter of 2009. In consideration for this, as required, GM submitted a detailed restructuring plan for 2009 2014 on February 17, 2009 demonstrating long-term viability based on the forecast of 2009 U.S. industry sales of 10.5 million units (57.5 million units globally). The restructuring plan focused on:

Marketing and Revenue Improvement: GM intends to restructure its business by focusing on its strongest global brands Chevrolet, Cadillac, and Buick and its premium truck brand GMC. On the other hand, Pontiac will serve as a focused brand with fewer entries within the Buick-Pontiac-GMC channel. The company will have 36 nameplates in 2012, down 25% from 2008 levels. It expects to make a decision to sell or phase out the Hummer brand by March 31, 2009 with a final resolution no later than 2010. GM has offered its Saab business for sale to the Swedish Government. On February 20, 2009, Swedish Government has reportedly approved the request for reorganization and restructuring plan submitted by the Saab Automobile AB. Saab operation will effectively become an independent business entity on Jan 1, 2010. GM is interested in spinning off its dealerships (Saturn Distribution Corp.) that holds the franchise agreement with Saturn dealers. Saturn would become an independent brand that would also sell other vehicles. Saturn was due to be closed by 2012, and could be closed earlier or file for bankruptcy should a spin-off not prove successful. GMs dealer count is projected to be reduced further from 6,246 in 2008 to 4,700 by 2012, and to 4,100 by 2014.

Technology/Regulation Compliance: GM is looking forward to investing significantly in alternative fuel and advanced propulsion technologies in the 2009 2012 timeframe, supporting the expansion of its hybrid offerings and development of the Chevrolet Volts extended range of electric vehicle technology. In January 2009, the company announced construction of a new manufacturing facility in the U.S. to build lithium-ion battery packs for the Volt. The company has committed to increase its number of hybrid models to 14 by 2012, and to make more than 60% of its fleet alternative-fuel capable.

Cost Reduction and Operational Actions: GM has consolidated its manufacturing footprint by closing 12 manufacturing facilities in the U.S. between 2000 and 2008. Given the present difficult market conditions, the company will close an additional 14 facilities by 2012. Agreements with the UAW concerning several items have been completed and are now being implemented. First, a special attrition program has been negotiated to assist restructuring efforts by reducing excess employment costs through voluntary attrition of the current hourly workforce. Second, the UAW and GMs management have suspended the JOBS program. The program provided full income and benefit protection to employees in lieu of layoff for an indefinite period of time. In addition, GM and the UAW have reached a tentative agreement relating to additional wage and benefit changes. Outside of the U.S., GM has accelerated restructuring plans for its Canadian, European and Asia-Pacific operations. In Canada, discussions have advanced with the Canadian Federal and Ontario governments regarding long-term financial assistance and maintaining proportional levels of manufacturing to execute the restructuring actions necessary for long-term viability. The company is also discussing with the Canadian Auto Workers (CAW) union on achieving competitive labor costs. The company aims to finalize both agreements in March 2009. In Europe, GM has engaged its European labor partners to achieve $1.2 billion in cost reductions, which include several possible closures or spin-offs of manufacturing facilities in high cost locations. In addition, GM is restructuring its sales organization to become more brand-focused and optimize its advertising. The company expects to resolve solvency issues for its European operations by Mar. 31, 2009. In Asia-Pacific, GM no longer wants to proceed with the proposed capacity expansion projects and product programs without financial support either from the respective governments or from other partners.

Capitalization: GM plans to convert about $27 billion in unsecured public liabilities currently on the companys balance sheet to a combination of new debt and equity, for a net debt reduction of at least $18 billion. Negotiations are progressing with advisors of the ad hoc bondholder committee. Term sheets have been exchanged and due diligence regarding GMs restructuring has commenced. Under the term sheet proposal, a substantial majority of the pro-forma equity in GM would be distributed to exchanging bondholders and the UAW VEBA. Discussions with representatives of the UAW VEBA are underway, and due diligence is also proceeding with respect to reaching an agreement to convert at least half of future VEBA payments to equity.

Federal Funding: GM revealed that it no longer assumes its capability to roll over and draw the full $4.5 billion secured bank revolver in 2011 due to the deteriorated credit market conditions. Therefore, the company requested for federal funding support of $22.5 billion (i.e., $18 billion as requested previously plus the $4.5 billion). If the industry conditions deteriorate with an U.S. industry volume of 9.5 million units in 2009 and 11.5 million units in 2010, GM would require additional federal funding of about $7.5 billion, bringing total Federal support up to $30 billion by 2011. This reflected that the company would need an additional $16.6 billion aid (as it has already acquired $13.4 billion) from the government. Repayment of the $30 billion aid is now expected to begin in 2012. Moreover, additional financial support might be required in 2013 and 2014 if GM has to make contributions to its U.S. pension funds. During the restructuring plan period (2009 2014), the company also intends to request funding support from the governments of Canada, Germany, U.K., Sweden, and Thailand for about $6 billion to provide liquidity for its operations in these countries. GM ruled out bankruptcy as the potential option for restructuring, since it would be highly risky, extremely costly, and time-consuming process. It also foresees the possibility of TARP funding support to decline from $18 billion in mid-2009 to $13 billion in 2011, and be fully repaid by 2014 if the industry conditions recover more quickly.

The success of GMs plans necessarily depends on several factors, including global economic conditions and the level of automotive sales, particularly in the U.S. and Western Europe. Severe liquidity constraints and depleting resources make us apprehensive about GMs ability to meet this criterion. Moreover, even if the company qualifies for the loans, it will come at a cost, which remains uncertain as of now. Standard & Poor has rated GM lowest at CC, indicating a high risk of default on its debt.

New Launches in 1Q09:   Demonstrating its commitment to product and technology excellence, GM launched several new vehicles including the fuel-efficient Chevrolet Cruze in China. In North America, GM began production of the reinvented Chevrolet Camaro, which offers 29 miles-per-gallon fuel economy on the highway. The Company also launched the Chevrolet Captiva Sport with its new 2.4L engine in Brazil, and introduced the Cadillac CTS-V to the Middle East. The 2009 European Car of the Year, the Opel/Vauxhall Insignia, continued to ramp up production, and in its first full quarter of sales, surpassed all competitors in the mid-size sedan segment in Europe.

GM will face serious liquidity problem, if it fails to meet the conditions laid down by the US government during the auto bailout. Further, looking into 2Q09, even with its planned actions, the Company's estimated liquidity is expected to fall significantly short, unless economic and automotive industry conditions improve significantly.