GM says drop in liquidity could cause it run out of cash in 2009
Saturday, November 08, 2008
Saying it may burn through its remaining cash in 2009, General Motors Corp. reported a net loss of $2.54 billion in the third quarter of 2008 or $4.45 per share.
The automaker on Friday, Nov. 7, put its revenue at $37.9 billion for the third quarter of 2008, down from $43.7 billion in the same quarter last year.
Cash, securities and "readily available" assets totaled $16.2 billion on Sept. 30, down from $21 billion on June 30, said GM.
The drop in liquidity reflected a negative operating cash flow of $6.9 billion in the third quarter, driven by an industrywide slowdown and frozen credit markets, the company said.
"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 necessary to operate its business," the company said in a statement.
Fritz Henderson, GM president, said the economy is experiencing its worst credit crisis in 70 years. In an effort to preserve its dwindling supply of cash, GM announced new cuts, including the elimination of a total 7,000 salaried and contract positions, a number that includes cuts announced in July.
"Liquidity is the top of priority for this company," Henderson said.
Drawing liquidity will mean asset sales — including possible sales of Hummer and AC Delco — exploration of government aid and cuts, GM said.
GM executives also quelled talk in a conference call with industry analysts of an acquisition of Chrysler. GM leaders said their focus for now is cash and liquidity.
"We basically put it aside for the moment," Henderson said of talks with Chrysler.
Information on GM's pension fund will be filed with the Securities and Exchange Commission Monday, a GM spokesman said.
The closure of GM's plant in Moraine on Dec. 23 will put 1,100 people out of work and will shutter a facility that employed about 2,500 people a year ago.
Despite overtures from the state and community, GM has consistently said there is no new product for the plant.
For domestic automakers, recent news has been not just bad, but unrelentingly bad.
In the last year, it seems quarterly financial reports from American automakers have been accompanied by announcements of new job cuts. Developments on Friday, Nov. 7, were no different.
What happened Friday?
General Motors Corp. reported a net loss of $2.54 billion in the third quarter of 2008. So far this year, the biggest U.S. automaker has seen a net loss of $21.26 billion.
Ford Motor Co. reported its own third-quarter loss of $129 million.
What are the companies doing about this?
GM and Ford announced further job cuts Friday. GM announced an additional $500 million in North American salaried job cuts, bringing to 7,000 the number of salaried jobs it has planned to cut since July. Ford said it will cut 10 percent of its North American salaried payroll by the end of January, affecting about 2,000 workers.
GM also plans to end production at its Moraine plant Dec. 23, a move it has planned since June.
Will these companies declare bankruptcy?
Both companies are trying to avoid the "B" word. Both are exploring government assistance. Rick Wagoner, GM's chief executive, and Alan Mulally, Ford's CEO, met with congressional leaders Thursday. There is talk of $25 billion in "quick loans" from the government.
For its part, GM says it will be aggressive about asset sales and cautious with unrolling future products, although the battery-powered Chevrolet Volt and the Lordstown-assembled Chevrolet Cruze are still scheduled for 2010 production.
"We're going to get very creative here," Ray Young, GM's chief financial officer, said Friday. "We're going to run on all fronts."
Is there any good news on the automotive front?
Not much. GM reported "very strong results" in Latin America, Africa and the Middle East, with a rise of $737 million in revenue from those regions.
