NEW YORK -- General Motors will have to go further than a restructuring plan announced on Monday to get costs in line with falling revenues, Fitch Ratings said on Tuesday.
Even if the automaker achieves all of the estimated $7 billion in cash savings expected from the cost-cutting plan by the end of 2006, that alone will not likely return GM to positive cash flow, Fitch Managing Director Mark Oline said on a conference call.
"We do expect a continuing cash drain from operations through 2006 and are increasingly concerned with a number of items that could further reduce liquidity," Oline said.
Struggling to stem billions of dollars of losses as foreign competitors eat into its market share, GM on Monday said it would cut 30,000 jobs, about a quarter of its North American factory work force, and close a dozen plants.
Still, Oline said, "the $7 billion in estimated cost savings that GM has outlined really is not significantly different from the $6 billion that was previously announced."
Resolution of labor disputes at GM's key supplier, Delphi Corp., is the major issue facing the automaker that could cut into liquidity, he said.
Estimating that a shutdown at Delphi would bring most of GM's key production to a halt, Oline said GM will likely step in and provide financial assistance to bridge gaps between Delphi and its labor union.
Fears of a crippling strike at Delphi have hammered GM's bond and share prices since Delphi filed for bankruptcy protection in October and began seeking hefty cost concessions from its unions.
Accelerated employee buyouts expected as part of GM's own restructuring will also tap into the automaker's liquidity, Oline said.
GM's union, the United Auto Workers, will likely have to bear the brunt of additional cost reductions needed over the near term, he said.
"To be able to extract dramatic cost reductions from the UAW, retirees and suppliers will become increasingly challenging," Oline added.
Pension reform legislation expected to be enacted next year is another concern, he said.
Although GM's pension is fully funded now, a period of low returns on its pension assets, plus greater funding requirements brought about by pension reform, could result in "significant claims on cash flows," he said.
Oline declined to comment on the probability that GM will threaten or use Chapter 11 bankruptcy protection to bring its costs down.
However, Fitch's "B-plus" rating on GM, a mid-level junk ranking, indicates significant default risk. About 25 percent of companies with a "B-plus" rating default over a five-year period, according to historical default statistics.
Fitch cut GM to "B-plus" on Nov. 9 and has the automaker on review for another possible downgrade. GM's General Motors Acceptance Corp. finance arm was left at a higher rating of "BB" and could be upgraded if GM succeeds in its plan to sell a controlling stake in the unit, Fitch said.