America's largest automaker says it may run out of cash during the current quarter.
CNN Money explains, "General Motors shook an already embattled auto industry Friday as it reported a huge loss that was much worse than expected and warned it is in danger of running out of cash in the coming months." The company "reported it lost $4.2 billion, or $7.35 a share, excluding special items" during the third quarter. That's nearly double what most analysts had predicted. "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."
The company also formally put an end to plans to merger with Chrysler. The AP reports, "While it didn't specifically name the automaker, GM said it was setting aside considerations for a 'strategic acquisition.'"
The $6.9 billion spent in the third quarter, Autoblog reports, "reduces its bank account from $21 billion at the end of Q2 to $16.2 billion today."
In a press release, the company announced cost-saving measures intended to improve liquidity, including pushing back the release dates of many new vehicles, ending 401k matching for employees, scaling back advertising, travel and overtime spending, and reducing an already-reduced workforce. But GM estimates that these measures could save $5 billion - almost certainly not enough to save the company.
Instead, GM may be playing a high-stakes game with Congress and the White House, gambling on a federal bailout. The International Herald-Tribune notes, "Underscoring the dire circumstances facing the industry, the chief executives of GM, Ford and Chrysler met Thursday in Washington with Nancy Pelosi, the House speaker, and Harry Reid, the Senate majority leader, about an emergency loan package." GM also called on President-Elect Barack Obama to provide aid to the industry within hours after his election.
In its earnings announcement, the company predicted, "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, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing."
Nearly all of those conditions - from market conditions improving to the company successfully selling off assets no one wants to buy - is highly unlikely. Street Insider comments, "GM's CEO Rick Wagoner has constantly said 'bankruptcy is not an option', but it is looking like that is the end game unless the government gives them a bailout. They simply do not have the cash to survive much longer."
Autoblog thinks "the main message GM wants to get out via its earnings report is that despite doing even more to help itself, the automaker considers government aid essential for its survival. So, ball in your court, Obama."
But some analysts say the company may need to go bankrupt in order to survive. The Detroit Free Press comments, "Bankruptcy would be a human and economic tragedy. The companies probably would shred labor contracts, lay off workers without severance, and end retiree health benefits. Workers might strike. Wages might be slashed. Auto parts suppliers and their workers would suffer, too." Some estimate the toll as high as 315,000 jobs. But "GM and Chrysler probably would emerge from bankruptcy as much smaller companies making smaller cars and with fewer employees earning less money, but with a better chance of surviving."
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