General Motors, the biggest US-automaker, warned Friday that it would run out of cash in the first half of next year and appealed to the US government for help to save it from collapse.
President-elect Barack Obama responded to the plea by saying in his first post-election news conference: “I have made it a high priority for the transition team to work on additional policy options to help the auto industry adjust.”
On a dramatic day for the ailing Detroit giant, the company also said it had suspended takeover talks with struggling peer Chrysler and reported a deepening of its cost-cutting plan in the wake of steep financial losses.
Trading in GM shares, which had been suspended after a delay in the scheduled financial results release, plunged more than 11 percent to 4.27 dollars in late trade.
“GM's estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business,” the company said in a statement giving its starkest warning yet.
“Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of that amount,” it said.
To survive, it said it would need “significantly” improved market conditions — highly unlikely in the current economic climate — or help from the government, suppliers or other investors.
“GM has taken a host of aggressive 'self help' actions to improve its business, but additional support from the US government to aid the auto industry during this industry downturn is essential,” the company said.
The direct plea for government help came after GM and other automakers requested 25 billion dollars in government-backed loan guarantees during talks with Democratic House of Representatives Speaker Nancy Pelosi on Thursday in Washington.
Congress recently authorized 25 billion dollars in loan guarantees to help US automakers develop more fuel-efficient vehicles in order to meet upcoming regulations.
Obama also pledged to work to speed up delivery of those funds.
GM president and chief executive Rick Wagoner said that “letting GM go” would be far more significant than the bankruptcy of Lehman Brothers investment bank, which sparked the latest round of the financial crisis in September.
“(There is) no comparison whatsoever,” he told the CNBC television channel.
“We're convinced the consequences of a bankruptcy would be dire and extend far beyond General Motors and therefore we are going to take every action we possibly can to avoid it,” Wagoner said in a conference call.
For the third quarter, the company announced a loss of 2.5 billion dollars and said it had burned through another 6.9 billion of cash during the three-month period.
Also Friday, Ford, the number-two US automaker, said it had lost 129 million dollars in the third quarter and had consumed 7.7 billion dollars of cash.
These are dark days for the US automakers, who were already struggling to adapt their fuel-guzzling products to the impact of high oil prices before the full force of the financial crisis struck.
This has had a two-fold impact on them: tighter credit conditions mean willing buyers are struggling to find financing for new car purchases, but falling employment and consumer confidence has reduced overall demand.
GM recently announced that its October sales tumbled 45 percent from a year ago and it said it faced the worst sales environment since the end of World War II.
The company has little access to capital markets to raise cash. Its bonds are rated deep in “junk” territory and the credit crunch means banks are unwilling to lend.
Appetite for the assets it intends to sell, such as its giant sport-utility vehicle nameplate Hummer or international auto parts group ACDelco, is also reduced.
In July, GM outlined a number of initiatives aimed at improving its cash flow by an estimated 15 billion dollars through 2009. These efforts would be deepened to save a further 5.0 billion, GM said Friday.
It said this would be improved by a reduction in capital investments, by pushing back development of new models, cutting sales promotion expenses and making further cuts to salary costs.
GM also announced that it had walked away from takeover talks with struggling peer Chrysler .
“The company has concluded that it is more important at the present time to focus on its immediate liquidity challenges,” it said, without naming Chrysler explicitly.
Chrysler, commenting on the GM statement, said it “neither confirms nor discloses” the nature of its private business meetings.
“As an independent company, we will continue to explore multiple strategic alliances or partnerships,” it said in a statement.
Both the United Auto Workers union and the senior senator from Michigan had openly opposed the merger which was expected to result in the loss of an estimated 30,000-35,000 jobs at Chrysler and an untold number at GM.
