Business

GM stops merger talks, says it's low on cash

General Motors is edging closer to running out of money, as slumping sales and deteriorating economic conditions drove the automaker to a larger-than-expected loss of $4.2 billion in the third quarter, excluding a one-time gain.

GM also said that it was suspending its merger talks with a crosstown rival, Chrysler, in order to concentrate on stabilizing its own business. “We've set aside consideration of such a transaction as a near-term priority,” GM chairman Rick Wagoner said.

The carmaker's results came on the heels of similar dismal quarterly earnings from the Ford Motor Co., raising new concerns about the prospects for survival of the two largest American automakers.

In addition, while the decision to suspend talks was probably the right one for GM, it leaves Chrysler with big problems, said Aaron Bragman, an auto analyst with the consulting company IHS Global Insight.

“They need to partner with a foreign automaker or they're left with the options of bankruptcy and liquidation,” Bragman said. “Chrysler is basically not big enough to stand on its own anymore.”

Automakers have been battered by a weak economy, rising gas prices, a sharp shift away from their most profitable products and a credit crisis that has emptied dealer showrooms. The stunning falloff has affected all automakers, as shaky consumer confidence and the inability of many eager shoppers to get loans because of tight credit drove sales down 31.9 percent in October compared with the period a year ago.

Underscoring the dire circumstances facing the industry, the chief executives of GM, Ford and Chrysler met with Nancy Pelosi, the House speaker, and Harry Reid, the Senate majority leader, on Thursday about an emergency loan package. The meeting focused on a request by automakers for up to $25 billion in loans to help the companies get through the worst vehicle market in 15 years and avoid bankruptcy protection.

The loan request is in addition to $25 billion in low-interest loans administered by the Energy Department to assist automakers in developing more fuel-efficient vehicles.

President-elect Obama has signaled his willingness to consider more government support.

GM short of cash

GM said its revenue in the third quarter declined 13 percent, to $37.9 billion, compared with $43.7 billion a year ago on weak demand in its core North American and European markets.

Including the one-time gain, the loss was $2.5 billion, or $4.45 a share, compared with $42.5 billion, or $75.12 a share, in the quarter a year ago, a period that included a non-cash charge of $38.3 billion on deferred tax assets.

The company also reported that it burned through $6.9 billion in cash during the quarter, and it ended the period with just $16.2 billion in cash reserves.

The rapid depletion of its cash position puts GM perilously close to dropping below the level needed to finance its operations.

GM said it had identified $5 billion in new actions to conserve cash, on top of an earlier plan to bolster its liquidity by $15 billion.

Still, GM said that it “will fall significantly short” of the cash needed to run its business in the first half of 2009 unless economic conditions improve and the company gets access to financial aid from the federal government.

“Even if GM implements the planned operating actions that are substantially within its control,” the company said, “GM's estimated liquidity during the remainder of 2008 will approach the minimal level necessary to operate its business.”

Troubles at Ford

Earlier, the Ford Motor Co. said that it burned through $7.7 billion in cash in the third quarter, leaving it with $18.9 billion at the end of September, as vehicle sales in the United States plunged amid historically weak levels of consumer confidence and tight credit markets that have prevented some consumers from obtaining loans.

Ford's automotive business lost $2.9 billion in the quarter, and the company announced more cuts to conserve cash, including an additional 10 percent reduction in salaried payroll costs and lower capital spending.

Overall, Ford said it lost $129 million in the quarter, or 6 cents a share, helped by a $2 billion gain as it shifted some retiree health care liabilities to a trust run by the United Automobile Workers union. In the same period a year ago, Ford lost $380 million, or 19 cents a share.

Excluding that gain and other one-time items, the company lost $2.7 billion. Its revenue was $32.1 billion, down from $41.1 billion in the third quarter of 2007.

“The global auto industry is facing unprecedented challenges,” Ford's chief executive, Alan Mulally, said. “But we are absolutely convinced that we have the right plan and are taking the right actions to weather this difficult period. In these challenging times our plan is more important than ever.”

Ford has reacted aggressively in recent months to the downturn, announcing a plan to convert three truck plants so they can build small cars and to bring six fuel-efficient vehicles to the United States from Europe in the next few years.

Merger talks done

A potential deal between GM and Chrysler had been widely discussed in the industry before talks apparently broke off.

In a statement on Friday, GM said, “While the acquisition could potentially have provided significant benefits, we have concluded that it is more important at the present time to focus on our immediate liquidity challenges, and accordingly, we have set aside consideration of such a transaction as a near-term priority.”

Wagoner and other GM executives have repeatedly vowed that the automaker will not seek bankruptcy protection.

Analysts, however, believe that without an infusion of capital from the government, GM will exhaust its cash reserves next year.

Chrysler said in a statement that it was still in the market for an alliance.

“As an independent company,” Chrysler said, “we will continue to explore multiple strategic alliances or partnerships as we investigate growth opportunities around the world that would aid in our return to profitability.” The Associated Press and Cox News contributed to this article.

  Comments