General Motors: Almost out of cash

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General Motors: Almost out of cash

Postby Baconsticks » Fri Nov 07, 2008 11:41 pm ... 2008110716

GM: Almost out of cash

NEW YORK ( -- General Motors shook an already embattled auto industry Friday as it reported a huge quarterly loss that was much worse than expected and warned it is in danger of running out of cash in the coming months.

The nation's largest automaker reported that it lost $4.2 billion, or $7.35 a share, excluding special items. That's up from the loss $1.6 billion or $2.86 a share it reported a year earlier and was far worse than the forecast of analysts surveyed by earnings tracker Thomson Reuters, which had forecast a loss of $3.70 a share.

But the most shocking news came in its statements about its cash position. GM said it had burned through $6.9 billion during the quarter and warned that it "will approach the minimum amount necessary to operate its business" during the current quarter.

In addition, the company said that in the first half of next year its "estimated liquidity will fall significantly short" of what it needs to continue operating. It said the only thing that would save it would be a significant improvement in economic and automotive industry conditions, help from the federal government, better access to capital markets or some combination of those options.

The report was by far the most grim assessment by a company that has insisted it is not considering filing for bankruptcy court protection. While the release did not mention the threat of bankruptcy, the outlook appeared to raise the possibility of such a dramatic step.

In response to questions on a conference call after the report, CEO Rick Wagoner said he would not speculate on whether GM would need to file for bankruptcy protections.

"We're convinced the consequences of bankruptcy would be dire and extend far beyond General Motors," Wagoner said. "We need to find a way to get through this and that's our focus."

Shares of GM (GM, Fortune 500) fell 9% Friday to $4.36, a nearly 60-year low.

Industry experts said the incredibly weak October U.S. auto sales that GM and the rest of the industry reported Monday, coupled with Friday's report, mean that bankruptcy for GM is a very real risk.

"I think we should be worried [about a bankruptcy] right now," said Robert Schulz, Standard & Poor's senior auto credit analyst. "We were worried before and the relative level of worry is now heightened."

S&P cut GM's credit rating deeper into junk bond status to a rating of CCC+ Friday afternoon, not far above the D rating that indicates default by a company.

Shelly Lombard, senior high yield analyst at Gimme Credit, an independent research firm, estimates that GM will need to get between $10 billion and $15 billion in federal assistance in order to avoid bankruptcy by 2010 and that the chance of bankruptcy without help is probably 80% to 90%.

"They didn't want to speak the B word. It doesn't sound like they have a lot of options if the government doesn't step forward," she said, adding that aid for the auto industry that has already been approved by Congress amounted to "bringing a Band-Aid to a train wreck."

Both Schulz and Lombard also said that not even a federal bailout may be able to save either GM or Ford in the long-term considering the problems facing the industry.

"To the extent that they do receive some assistance, it's more buying time rather than a fundamental solution," said Schulz.

Still, experts agreed Congress will need to take swift action to make any difference for the embattled industry.

"This is not something that can go on and be dealt with in the next year, it needs to be dealt with in the next few weeks," said Dave Cole, chairman of Michigan think-tank the Center for Automotive Research. "When your cash is gone, you're gone."

One possible endgame scenario reported recently involved a corporate tie-up between GM and Chrysler. Wagoner, without mentioning Chrysler by name, said that GM had ended talks about a possible merger with a Detroit rival to concentrate on the cash crisis it now faces.

"While it's fair to say we conclude this acquisition could have provided significant benefits, we've concluded at this particular time that it's important we put 100% of our efforts on the immediate liquidity challenges," said Wagoner.

Chrysler issued a statement of its own after GM's report. CEO Robert Nardelli didn't comment about the merger talks but said Chrysler would keep looking at various options to end its ongoing losses.

"As an independent company, we will continue to explore multiple strategic alliances or partnerships as we investigate growth opportunities around the world that would aid in our return to profitability," he said.

Seeking cash, cutting costs
GM announced a series of steps Friday designed to help it improve its cash reserves by $5 billion. Those steps included cutting another 10% of salaried employment costs, on top of the 20% cut in those costs already planned. In addition to expected staffing reductions, those white collar workers will not get their typical incentive pay next year.

The company will also cut capital spending plans by $2.4 billion in 2009, pushing back development plans for some new models. But it warned that even those steps would not be enough unless conditions improve. It did not announce any plans for additional plant closings or hourly staff cuts in its statement, however.

The company is clearly pinning much of its hopes of weathering the current downturn on an industry bailout from Washington.

"The company has engaged in discussions with various U.S. federal government agencies and congressional leaders about the ... the need for immediate government funding support given the economic and credit crisis and its impact on the industry, including consumers, dealers, suppliers and manufacturers," according to a company announcement.

Wagoner joined the chief executives of Ford Motor (F, Fortune 500), privately-held Chrysler LLC, as well as the president of the United Auto Workers union Thursday afternoon in meetings with House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., to seek support for a wide-ranging bailout package. Both congressional leaders voiced support for additional help for the sector following their meetings.

Among the topics discussed were a $25 billion loan to fund union-controlled trust funds that would be set up in the coming year to cover the health care costs of retirees and their family members. Shifting about $100 billion of those costs from the automakers' balance sheet to the trust funds was a key concession the companies won from the UAW in the 2007 labor deals.

The discussions also touched on whether the government would allow the automakers to tap the $700 billion bailout of Wall Street firms and banks that was enacted last month. Treasury has so far rejected auto industry inquiries about accessing that pool of money.

The automakers also renewed their pre-election request to double the $25 billion low-interest loan program approved by Congress to help automakers convert operations to make more fuel-efficient vehicles and meet the demands of car buyers and new federal rules.

But Wagoner said just doubling the money available under that program won't solve the immediate cash crisis facing the industry. And for the first time, he put a dollar amount on the cash that automakers are looking for from the federal government right now.

"In the meeting yesterday we talked near-term liquidity support for the industry in the range of $25 billion," he said. "No one said yes or no to that number."

Years of losses
The company's problems have been building for many years. It has not made money on its core North American auto operations since 2004, and since that time it has run up $72 billion in net losses, including this latest period.

The company did see a one-time $1.7 billion gain from a change in accounting for its obligation to pay for health care for retirees and their family. That allowed it to post a net loss of $2.5 billion, or $4.45 a share, an improvement from the net loss of $42.5 billion, or $75.12 a share a year ago when it was hit by huge special charges.

Much of the net losses in recent years have been due to non-cash charges, such as the ones a year ago. But even excluding those kinds of special charges, GM's core auto operations in North America have lost nearly $18 billion over the course of the last 15 quarters.

GM's announcement came on the same day that Ford Motor reported a $3 billion loss in the period, excluding special items. Even Japanese rival Toyota Motor (TM), which has a much better cash position coming into this crisis, announced Thursday that its third quarter earnings had plunged nearly 70%, as it slashed its full fiscal-year outlook by 50%.

You know the economy is doing bad when the world's largest Automaker is on the verge of collapse.

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Postby osprey » Sat Nov 08, 2008 1:37 am

Toyota is actually the world's largest automaker. GM has been on a downhill slide for some time now, and with the recent economic crisis, I'm not hugely surprised to see this. Still sucks though...
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Postby rabid_fox » Sat Nov 08, 2008 1:32 pm

Git yir walkin' boots on, boy.

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Postby the_real_simmer_3 » Sat Nov 08, 2008 10:28 pm

So what's going to happen to Test Track?

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Postby Bocaj Claw » Sun Nov 09, 2008 2:03 am

Its going to be renamed "Hollywood Car Track"
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Postby Chris » Sun Nov 09, 2008 3:31 pm

What about my humvee's D: ?!

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Postby Rooster » Mon Nov 10, 2008 9:16 pm

Everyone should buy a horse or a very large dog to ride.

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Postby GeorgiaCoyote » Tue Nov 11, 2008 1:39 pm

This isn't really all that new to me. GM has been on such a decline for years. Of course their answer is to just keep sending more manufacturing jobs down to Mexico or elsewhere. Yeah... a lot of good that did ya. Toyota as well as other Aisan automakers actually bring jobs to America and look how well their cars are selling. GM could learn a thing or two from Toyota. As for me, I suspect my little Ford Focus is gonna have to last me for a good, long while.

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Postby Steve the Pocket » Tue Nov 11, 2008 6:14 pm

GM and Chrysler's corporate strategy amuses me muchly. While the proliferation and promotion of big, impractical, smog-spewing SUVs and trucks (something nearly all car companies did during the '90s) was unethical, one could at least write it off as being slaves to the market. But now that the market has changed its mind and wants fuel-efficient cars, it makes no sense for them to continue their old strategy. The only explanation is that they're either run by the same kind of people their trucks are marketed towards, or they have some kind of vendetta against the environment worthy of a Captain Planet villain. :huh:

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Postby rabid_fox » Tue Nov 11, 2008 7:30 pm


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Postby Bocaj Claw » Tue Nov 11, 2008 11:08 pm

:lol: Gimme hug!
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Postby Riiya » Wed Nov 12, 2008 2:10 am

Yeah, GM is pretty much screwed. The American work force is best used in producing these luxury vehicles, with lower margin vehicles produced offshore. So when sales of the big vehicles fall, it hurts the U.S. workers.

Then there's that stupid regulation that forces GM to produce some of the smaller vehicles in America, despite all logic, but that's another story.

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Postby Tarukai » Wed Nov 12, 2008 3:51 am

GM might be able to get out of this, but the chances are incredilously slim. Even a merger with Cerberus-Chrysler wouldn't do them much good right now. Ford seems a bit better in standing, but who knows how long that will last.

Either way, I hope they do make it out of this, as if we can bring more jobs back here with manufacturing and such for the big three (possibly soon to be the big two), it might help them out a bit. Despite the regulations in place here, I think they could do it.

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Postby Tom Flapwell » Wed Nov 12, 2008 5:09 am

Bocaj Claw wrote::lol: Gimme hug!

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Postby Steve the Pocket » Thu Nov 13, 2008 9:18 pm

[stuff about a sludge monster thing]

I want to say... Fern Gully? My early memory of cartoons eludes me but Tom's contribution sounded familiar.

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