A new report casts doubt on the viability of America's biggest carmaker, General Motors, despite costly government attempts to rescue the domestic automobile industry.
Since late last year, the federal government has lent tens of billions of dollars to carmakers in return for promises of an aggressive effort to trim costs, restructure operations, and lay the foundation for an eventual return to profitability. But now those plans appear to be in peril.
Auditors for General Motors say they have "substantial doubt" the corporation can continue operations, citing massive losses and insufficient cash flows among a long list of concerns.
"I think everybody knows this company, as well as Chrysler, are on the brink of disaster," said John McElroy, auto industry analyst. "It may well be that this means GM has taken a big step towards Chapter 11."
Part of the U.S. bankruptcy code, Chapter 11 allows a failing business to continue operations while restructuring and negotiating with lenders.
General Motors lost more than $30 billion last year, and a total of more than $80 billion over the last three years. GM has received $13 billion in emergency federal loans in recent months and hopes to obtain billions more. It has until the end of the month to secure concessions from debtors as well as the United Autoworkers Union in order to be eligible for further government aid. Last month, the company announced a plan to eliminate tens of thousands of jobs and close several factories. GM says failure to achieve significant cost savings would force it into bankruptcy.
Automobile industry officials say they worry that filing for bankruptcy would drive away customers. Millions of American jobs are tied directly or indirectly to the car industry.
But some question whether GM can survive no matter what it does, given the current economic climate.
"We have to see some sort of [economic] stabilization," said Keith Crain, who publishes Automotive News trade magazine. "Once that happens, then I think companies like GM and Chrysler can get their costs in line. But as long as there continues to be a free fall, GM is at grave risk."
If automakers are hoping for a quick economic rebound to boost their chances of survival, the latest numbers do not look promising. More than 600,000 Americans filed for unemployment benefits last week, bringing the total number of people on the jobless rolls to 6.5 million, more than double the number that existed a year ago.
"These are the worst set of numbers since the fall of 1982. They will get better, probably by the end of this year, but in the meantime they are going to get a lot worse," said Nariman Behravesh, Global Insight chief economist.
The deep economic recession is believed to have been caused, in part, by a severe credit crunch precipitated by a rash of home foreclosures in the United States. The Mortgage Bankers Association reports that more than 10 percent of American mortgage holders were either late in payments or in foreclosure at the end of last year.
Separately, U.S. factory orders as well as retail sales fell last month.
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