GM reports running low on cash; ends Chrysler merger talks

GM said it had a net loss of $2.5 billion on the period, including a one-time gain of $4.9 billion related to a plan to reduce medical costs for retirees. That compares with a $38.9-billion net loss in the third quarter of last year, when the company booked a huge tax accounting charge.

The Detroit-based company announced plans to raise $5 billion, much of it through cost cuts; that comes on top of $15 billion the company said in July that it would generate through savings and asset sales.

"The third quarter was especially challenging for the auto industry," said GM Chairman and Chief Executive Rick Wagoner. The company's "efforts are threatened by a severe downturn in sales caused by the widespread credit crisis," he said.

Through October, GM's U.S. sales were down 20.3%, worse than the overall industry decline of 14.6%. The automaker said that although it had predicted in the second quarter that industrywide U.S. sales would fall to 14 million cars and light trucks in 2008 and 2009, it now expects sales to drop to 11.7 million in 2009. In 2007, U.S. light-vehicle sales reached 16.1 million.

Most worrisome was the company's cash burn. GM said it spent $6.9 billion in the third quarter, more than twice as much as it did in the second quarter. At the end of September, GM had $16.2 billion in cash and cash equivalents, down from $21 billion on June 30.

With essentially no outside funding available, GM has been forced to use its own cash reserves. In the second quarter, it burned through that cash at an approximately $1-billion-a-month clip as U.S. auto sales in the period dropped 12% from a year earlier. But in the third quarter, sales slumped further, down more than 18% from the same period in 2007, and cash burn also increased to about $2.3 billion a month.

Without additional sources of funding, that would give GM scarcely enough money to finish out the year. In its earnings report, the company said that its "estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business," and that its "liquidity will fall significantly short" in the first two quarters of 2009 without improved economic and industry conditions.

Earlier today, Ford Motor Co. reported a $129-million loss for the same period on an operating loss of nearly $3 billion. As with GM, the most worrisome aspect of the report was that Ford burned through $7.7 billion in cash holdings in the quarter, or $2.6 billion a month.

That's well over twice as fast as the company was using its stockpile in the second quarter and leaves the company with less than $19 billion on hand -- enough to last only seven months at the current burn rate.

While Ford has explored sales of assets such as its one-third stake in Japanese automaker Mazda Motor Corp., GM has reacted by exploring strategic partnerships and mergers. One widely discussed tie-up would have GM acquiring part or all of Chrysler in an attempt to reduce combined costs by $10 billion and get access to the smaller automaker's significant cash holdings.

Without naming Chrysler, GM officials today acknowledged that such talks had been pursued but said that they were being put aside for the moment.

"We had explored the possibility" of a merger, Wagoner said. But "we've concluded at this particular time that it's important we put 100% of our emphasis on the liquidity situation."

GM hopes to raise as much as $4 billion from asset sales. In addition to the Hummer brand, which has been on the block since spring, GM said today that it was selling aftermarket parts maker ACDelco and its technical and manufacturing facilities in Strasbourg, France.

However, the automaker acknowledged that because of the near-frozen credit markets, it has had difficulty completing any asset sales.

GM delayed the release of its earnings this morning, causing the New York Stock Exchange to temporarily halt trading in its shares. Before the release, GM shares had traded up 3 cents. Within minutes of the release, which came about 45 minutes late, GM shares began to fall and in early trading were off 67 cents, or 14%, to $4.13.

Bensinger is a Times staff writer.

ken.bensinger@latimes.com