GM Says It May Run Out of Operating Cash, may liquidate. By Jeff Green and Mike Ramsey
Nov. 7 (Bloomberg) -- General Motors Corp., seeking federal aid to avoid collapse, said it may not have enough cash to keep operating this year and will fall ``significantly short'' of the amount needed by the end of June unless the auto market improves or it raises more capital. The largest U.S. automaker reported a $4.2 billion third- quarter operating loss today and said its available cash fell to $16.2 billion on Sept. 30 from $21 billion at the end of June. Merger talks with Chrysler LLC were suspended. ``GM is making a pretty direct plea for help,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan Inc. in Memphis, Tennessee. ``The message is, `we've done all the things we can do, and we need help.' And if we don't get help, fill in the blank.'' The cash drain reflected the strain of a 21 percent slump in U.S. sales in the quarter as the credit freeze deepened. It also added urgency to U.S. automakers' request for government aid. The companies are asking for $50 billion in new loans, a person familiar with the proposal said. Chief Executive Officer Rick Wagoner and the CEOs of Ford Motor Co. and Chrysler renewed the push for assistance yesterday in meetings with U.S. House and Senate leaders in Washington. Wagoner said GM also has been in contact with the staff of President-elect Barack Obama. GM rose 44 cents, or 9.2 percent, to $4.36 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have tumbled 82 percent this year. $73 Billion in Losses Today's outlook was the bleakest yet from the automaker, which has lost almost $73 billion since the end of 2004. Using $6.9 billion in cash last quarter pushed GM closer to the $11 billion minimum it says is needed to pay bills. A bankruptcy filing ``would be a disaster far beyond General Motors and a sad chapter in American history,'' Wagoner, 55, said in a Bloomberg Television interview. GM said on Oct. 24 that bankruptcy ``is not an option.'' Should GM take such a step, the result would be 2.5 million jobs lost in the first year among automakers, suppliers and related businesses, according to a Nov. 4 report by the Center for Automotive Research, based in Ann Arbor, Michigan. Ford, which reported using $7.7 billion in cash last quarter, said today it has ``sufficient liquidity.'' Bailout Optimism A U.S. rescue package for GM, Ford and Chrysler is likely before President George W. Bush leaves office in January, said Dennis Virag, president of Automotive Consulting Group in Ann Arbor. ``Either the federal government provides money for a bailout and lets the industry retool, restructure, and move ahead, or the industry dies,'' Virag told Bloomberg Television. While GM didn't specify any prospective partners in saying merger discussions were being halted, the biggest U.S. automaker had been in negotiations on a tie-up with Chrysler, according to people familiar with the plans. Consideration of a strategic acquisition was ``set aside'' to focus on ``immediate liquidity challenges,'' Detroit-based GM said in a statement. Chrysler CEO Robert Nardelli, who hadn't acknowledged the talks, sent a note to employees that included the wording of GM's statement. The company, owned by Cerberus Capital Management LP, will ``continue to explore multiple strategic alliances or partnerships,'' Nardelli said. GM Loss, Estimates GM's per-share operating loss was wider than the average estimate on an adjusted basis of $3.94, based on 10 analysts surveyed by Bloomberg. Including a non-cash, $4.9 billion one-time gain related to unloading retiree medical bills, GM had a net loss of $2.5 billion, compared with a $38.9 billion year-earlier loss on a tax-accounting charge. GM's cash use in the fourth quarter should be closer to the levels in this year's first and second quarters, when it was about $3.6 billion, Chief Financial Officer Ray Young said on a conference call. GM said it is trying to boost cash by $20 billion by the end of next year, an increase from a July 15 plan for $15 billion. Asset sales, a part of the strategy, have been hampered because potential buyers can't get financing, Chief Operating Officer Fritz Henderson said. GM's Hummer brand of sport-utility vehicles is among the businesses on the block. Paring Spending Capital spending is being trimmed in 2009 to $4.8 billion, down $2.4 billion, by delaying the debut of some vehicle programs in North America and Europe by as long as a year. GM will also save $1.5 billion by cutting advertising and dealer promotion support and by reducing production starting next quarter. GM will further pare engineering and cut back on discretionary expenses, including travel, consulting and unscheduled overtime. Working-capital spending will be reduced by $500 million by lowering reserves of parts and inventory, the company said. GM also said it will try to slash 30 percent of salaried-workforce expenses, up from a goal of 20 percent. GM will protect the capital budget for the electric Chevrolet Volt and the Chevrolet Cruze compact car, Henderson said on a conference call. GM's debt rating was lowered by one grade to CCC+ by Standard & Poor's, which said it was ``cautious'' regarding GM's ability to raise capital. Ceding a Crown The latest retrenchment for GM comes two months after its 100th birthday. After 77 years as the world's largest automaker, it is poised to be surpassed in 2008 global sales by Toyota Motor Corp. It employs about 266,000 people around the world with factories in 34 countries. Today's release on GM's results was delayed 48 minutes past its scheduled 10:30 a.m. arrival because of the need for a wording change, said Julie Gibson, a spokeswoman. GM's $3 billion of 8.375 percent bonds due in July 2033 fell 4.3 cents to 24 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 34.83 percent. Credit-default swaps protecting against a GM default for one year rose to a level that implies the market has priced in a more than 66 percent chance of default, according to CMA Datavision. One-year credit-default swaps were quoted at a mid-price of 51 percentage points upfront, compared with 50 percentage points yesterday, CMA data show. That means it would cost $5.1 million initially in addition to $500,000 over one year to protect $10 million of GM bonds. The contracts reached as high as 52 percentage points upfront on Oct. 16. To contact the reporters on this story: Jeff Green in Detroit at [EMAIL PROTECTED]; Mike Ramsey in Detroit at [EMAIL PROTECTED] Last Updated: November 7, 2008 16:28 EST --~--~---------~--~----~------------~-------~--~----~ Thanks for being part of "PoliticalForum" at Google Groups. For options & help see http://groups.google.com/group/PoliticalForum * Visit our other community at http://www.PoliticalForum.com/ * It's active and moderated. Register and vote in our polls. * Read the latest breaking news, and more. -~----------~----~----~----~------~----~------~--~---
