GM cuts sales forecast, may need more help
The automaker's lower industrywide sales outlook for 2009 could lead it to seek additional federal loans.
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| GM CEO Rick Wagoner may need to soon ask for more federal loans after his company cut its sales forecast. |
NEW YORK (CNNMoney.com) -- General Motors cut its forecast for industrywide U.S. auto sales Thursday, a development that could lead the company to ask for additional loans from the federal government.
In a presentation to analysts Thursday, GM executives said it is now planning on total vehicle sales of 10.5 million cars and trucks in the U.S. this year. That's down from an earlier forecast of 12 million vehicles that GM gave to Congress in early December when it first sought federal assistance to keep it out of bankruptcy.
GM President Fritz Henderson said that volatility makes any forecast for sales very difficult, and it is for that reason the company is now using more conservative estimates for sales.
The lowered outlook is important because it could be a sign that GM believes it will need more money in order to make it through this downturn. When GM submitted its turnaround plan to Congress last month, the company said that sales of 10.5 million vehicles in 2009 was a "downside scenario."
At the time, GM (GM, Fortune 500) CEO Rick Wagoner was asking for a $12 billion loan through 2009, saying it would need with $10 billion of that money by the end of March.
But according to the turnaround plan, GM said it might need $15 billion in federal help by the end of March and a total of $18 billion during the year if industrywide sales fell to the 10.5 million level in 2009.
GM's new sales target is below estimates of some widely followed auto industry experts. Consultant J.D. Power & Associates is forecasting sales of 11.4 million cars and light trucks, which translates to about 11.7 million total vehicles when including the heavy trucks that are part of GM's projection.
It is also lower than Chrysler's fairly conservative 2009 forecast from December of 11.1 million cars and light trucks, as well as Ford's optimistic estimate of 12.5 million vehicles. But GM's forecast is roughly in line the anemic sales pace from the fourth quarter of 2008.
GM received a bailout of up to $13.4 billion in federal loans from the Treasury Department on Dec. 19 after the Senate failed to approve a rescue package for GM and Big Three rivals Ford Motor (F, Fortune 500) and Chrysler LLC. Chrysler received a loan of $4 billion.
The $17.4 billion in loans approved in December was roughly half of the combined $34 billion the three automakers asked for in December to see them through to 2010.
When seeking help in December, Ford said it hoped it would not need any assistance as long as sales stayed in the 10.5 million to 11 million range for the full year. A spokesman for Ford said Thursday the company has not yet changed its forecast and that it still hoped to get by without any federal loans.
When asked Thursday if the new sales projection meant GM would need additional help from the government, Chairman and CEO Rick Wagoner said that was a possibility. But he added that the company is not working under the assumption that additional federal help will be available.
"I think there might be less available to us because you guys are getting more," he joked with the analyst from Bank of America (BAC, Fortune 500), which reportedly is seeking additional help from the Treasury Department to help it digest its purchase of Merrill Lynch. "When I was there testifying, I didn't get the impression they wanted to increase the size of the pie."
GM also cut its U.S. sales forecast for 2010 and 2011 Thursday, and it lowered its industrywide sales forecasts for markets around the globe for 2009 through 2012.
Wagoner and Henderson said the company is on track to provide the federal government with proof that it can become profitable and viable for the long-term by a Feb. 17 deadline.
A combination of high gas prices in early 2008 and tight credit later in the year caused demand for autos to plunge. GM was among the hardest hit in the industry. Its full-year U.S. sales in 2008 fell 23% from a year ago.
The company has reported net losses of $72 billion since it last turned a profit on its core North American auto operations in 2004. Analysts surveyed by earnings tracker Thomson Reuters are forecasting a loss of $3.4 billion in the recently completed fourth quarter, and another $10.2 billion this year.
Wagoner and Henderson also said that because of the lower sales targets, GM has to cut costs further in order to break even.
The company is supposed to reach agreements with its unions by Feb. 17 to cut labor costs in line with those paid at nonunion U.S. plants operated by Asian automakers such as Toyota Motor (TM) and Honda Motor (HMC).
When asked about what concessions the company would be seeking from the United Auto Workers, Henderson said the company may be able to get its costs in line without demanding pay cuts from the union.
"Does it require a wage cut? The answer is no," he said.
GM won large cost savings in its 2007 labor agreement -- although some of those changes are not now due to take effect until next year.
Henderson said when comparing worker pay in the new union contract to what is paid at the nonunion plants, "it turns out there's not a significant difference." 
