General Motors posted a $4.2 billion operating loss during the third quarter of 2008 – a far larger amount than had been expected by analysts – the automaker announced today. The automaker has suspended its talks over a possible merger with Chrysler and said that its cash liquidity for the rest of the year “will approach the minimum amount necessary” to continue to operate.
GM says that, despite the plans outlined in the presentation to employees this morning, its liquidity will fall significantly short of that minimum amount unless the industry’s conditions “significantly improve.”
GM’s financial situation
The Detroit automaker posted a third quarter net loss of $2.5 billion ($4.45/share), an improvement over the $42.5 billion loss from t GM says that its rate of burning through cash – previously about $1 billion a month – has doubled to $2.3 billion, or $6.9 billion total during the quarter.
The automaker says that it expects fourth quarter spending to be down significantly, however. Revenues for the third quarter were down $37.9 billion, well below analysts’ estimates before the announcement. GM says its operating cash is approaching the “minimum amount necessary to operate,” which puts the automaker near the edge of bankruptcy. The automaker has about $20 billion in cash but says that below $12 billion is its breaking point.
Short-term fixes
To temporarily improve its liquidity, GM is looking to boost capital by $5 billion by the end of the year and $20 billion by the end of 2009 by way of more job cuts, sale of assets and slashing capital spending by a further $2.5 billion. According to the presentation GM gave to its employees earlier today in Detroit, the automaker will cut spending in its media and sales promotions, reducing its dealer network restructuring activities, revising its production schedules, eliminating non-essential projects and, perhaps most importantly in the long run, reducing engineering spending.
More than $10 billion in internal operating actions to reduce spending have been completed or are on track for completion by the end of 2009.
GM confirmed that it would push back the Chevrolet Cruze, Cadillac CTS coupe, Saab 9-5 and Saab 9-4x to a 2010 calendar year introduction as 2011 models.
Chrysler merger talks over
The automaker announced that it has suspended talks with Chrysler LLC and Cerberus Capital Management LC over the proposed merger between the two automakers. GM says that it won’t look into a merger further until its immediate financial problems are fixed – so don’t expect many more GM/Chrysler rumors for a while.
U.S. Government bailout
GM again reiterated its desire for federal funding to help the Detroit auto industry, though CNBC analysts were mixed on how positive this outcome would be for the automaker and the industry as a whole.
“The U.S government’s actions to help stabilize the credit markets and eventually ease the credit crunch are an essential first step to the economy’s and the auto industry’s recovery but further strong action is required,” CEO Rick Wagoner said in a statement.
