GM staring into abyss as industry seeks help

Roland Jones • Profile • E-mail

For mighty General Motors, the news could hardly be worse. The nation's biggest automaker said Friday it lost $2.5 billion in the latest quarter as it was slammed by a slowing economy, a global credit crisis and the effect of high energy prices.

The company is now going through cash at a rate of $2 billion a month and says that without help it will run out of money in 2009.

“This is not necessarily the end of the road for General Motors, but they can certainly see the end of the road from where they are right now,” said Aaron Bragman, an automotive analyst at consultancy Global Insight.

Without a federal bailout, GM could be looking at bankruptcy, he added.

The entire auto industry is in trouble, but GM appears to be in worse shape than its rivals.

Ford burned through $7.7 billion in the latest quarter to keep its operations running but said it has enough cash to make it to 2010, when the economy and auto sales are expected to improve. Chrysler, now privately owned, does not report financial results but has a relatively strong cash position — a major reason that GM was interested in acquiring the company from Cerberus Capital Management.

GM said Friday it was suspending those talks, however, "to focus on its immediate liquidity challenges."

Faced with these sobering statistics, the Big Three are turning to Capitol Hill. On Thursday, the three CEOs and the leader of their biggest union met with House Speaker Nancy Pelosi to discuss another $25 billion in federal aid on top of a $25 billion loan allocated just a few weeks ago.

The election of Barack Obama as the nation’s 44th president offers some new hope for the industry.

Obama singled out the auto industry Friday in his first news conference since the election,  calling it "the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil."

"I have made it a high priority for my transition team to work on additional policy options to help the auto industry adjust, weather the financial crisis and succeed in producing fuel-efficient cars here in the United States," he added. "I have asked my team to explore what we can do under current law and whether additional legislation will be needed for this purpose."

One big question is whether Congress will act in the upcoming lame-duck session, before the Jan. 20 inauguration.

“GM said they’ll be in trouble sometime next year, but it may come sooner than that,” Bragman said.

“The only scenario left now for GM and the other automakers is for the government to step in with some financial aid,” said Bragman. “The marketplace has not responded to the automakers’ pleas for money, or plans to sell its assets like the Hummer brand, so basically it’s up to the government now, and if they don’t step in quickly we’re looking at bankruptcy.”

In a conference call with reporters and analysts, Wagoner said the company will “take every action we possibly can” to avoid bankruptcy.

Video   Ford’s CEO on outlook Nov. 7: Ford’s CEO Alan Mulally discusses his company’s financial report on CNBC. CNBC

“We’re convinced that the consequences of bankruptcy would be dire,” he said. “We need to find a way to get through this, and that’s really our focus.”

Ford, which said Friday it plans to further reduce its workforce by 10 percent, is in a stronger liquidity position than GM, having mortgaged all its assets — including the iconic blue oval Ford logo — to the tune of $23 billion to finance its turnaround plan. Analysts expect Ford to have enough cash to finance its day-to-day operating needs until 2010, when the auto market is expected to pick up again.

For GM, the situation is grimmer. The automaker announced a range of moves Friday to 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 automaker also said it will lay off about 3,600 workers.

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