GM reports $2.5B 3Q loss, says running out of cash
By TOM KRISHER and JEFF KAROUB
,
AP
DETROIT, Mich. -General Motors
Corp. reported a $2.5 billion loss in the third quarter and warned Friday that it could run out of cash in 2009 if the U.S. economic slump continues and it
doesn't get government aid.
GM also said it has suspended talks to acquire Chrysler. While it didn't specifically name the automaker, GM said it was setting aside considerations
for a "strategic acquisition."
"While the acquisition could potentially have provided significant benefits, the company has concluded that it is more important at the present time
to focus on its immediate liquidity challenges and, accordingly, considerations of such a transaction as a near-term priority have been set aside,"
the company said in a statement.
Privately held Chrysler said it won't comment on GM's statement, but added it remains focused on returning to profitability.
GM said its cash burn for the quarter accelerated to $6.9 billion, and government aid will be "essential" because of the slow economy and credit
crisis.
If companies run out of cash, generally they can sell assets, cut costs or file for bankruptcy protection to keep creditors at bay while they develop a
financial reorganization plan.
But in a conference call with reporters and analysts, GM Chairman and CEO Rick Wagoner
said the company will "take every action we possibly can" to avoid bankruptcy.
"We're convinced that the consequences of bankruptcy would be dire," he said, adding that the company will use every source of funding it
can.
"We need to find a way to get through this, and that's really our focus."
The company also said it will indefinitely lay off about 3,600 workers beginning early next year as it slows production at 10 of its assembly plants.
The news came hours after Ford Motor Co. said
it lost $129 million for its third quarter and will cut about 2,260 more white-collar workers in North America as the industry tries to weather the worst
economic downturn in decades. As U.S. and global economies have rapidly deteriorated, auto sales have nearly shut down.
Wagoner had said in a statement earlier that the third quarter "was especially challenging for the auto industry."
"Consumer spending, which represents close to 70 percent of the U.S. economy, fell dramatically, and the abrupt closure of credit markets created a
downward spiral in vehicle sales," he said.
The nation's biggest domestic automaker reported a net loss of $4.45 per share during the quarter, compared with a record-setting loss of $39 billion,
or $68.85 per share, a year ago. Its adjusted loss was $4.2 billion, or $7.35 a share, with an adjusted loss of $2.8 billion for its automotive operations.
Revenue fell to $37.9 billion from $43.7 billion, due largely to credit freezing across the globe.
The loss exceeded Wall Street estimates. Analysts surveyed by Thomson Reuters
predicted a loss of $3.70 per share on sales of $39.4 billion.
The struggling company announced it would improve liquidity by $5 billion by the end of next year by cutting capital spending, reducing sales promotions,
and further cutting production in the first quarter.
The company also suspended its matching contribution for employee 401K plans, and suspended tuition reimbursement. In addition, salaried employees will not
get incentive pay next year for their work in 2008, GM said.
It said it will slow down assembly line rates at North American factories beginning next year, but it gave no details. It also said several vehicle new
vehicle programs would be delayed, but it would spend more on its Chevrolet Volt electric car and other fuel-efficiency programs.
But the cuts and delays may not be enough.
"Even if GM implements the planned operating actions that are substantially within its control, GM's estimated liquidity during the remainder of
2008 will approach the minimum amount necessary to operate its business," the company said in a news release.
"Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of
that amount unless economic and automotive industry conditions significantly improve" or it receives government funding, the news release said.
Ray Young, chief financial officer, said GM expects significantly lower cash burn in the fourth quarter.
GM said it had $16.2 billion in cash, marketable securities and readily available assets at the end of September, down $4.8 billion from the $21 billion it
reported on June 30.
GM has said in the past it needs a minimum of $11 billion to $14 billion to run the company.
GM officials said in the conference call that it intended to cut a total of 7,000 white-collar jobs this year, up from 5,100 announced in July. GM had
32,000 U.S. salaried workers at the end of last year, down from 44,000 in 2000.
The automaker had a net gain of $1.7 billion in the quarter, including a $4.9 billion gain due to the shift in its retiree health care expenses to a
union-administered trust starting in 2010.
