GM Warns It Could Run Out Of Cash

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GM Warns It Could Run Out Of Cash By 1st Half '09
November 07, 2008

DETROIT -(Dow Jones)- General Motors Corp. (GM) warned Friday that it risks running out of cash in the first half of next year without government intervention or a reversal of weakening market conditions.

GM also indicated that merger talks with Chrysler LLC had ended, stating that the "possibility of a strategic acquisition" had been set-aside to focus on liquidity.

Without government intervention, a significant increase in auto sales or " substantial" proceeds from asset sales, GM said its cash on hand will reach critical levels by the end of 2008, after burning through another $6.9 billion in the September quarter.

GM shares were down 11.9% at $4.23 following the delayed earnings release.

Liquidity would fall below mandatory levels in the first half of 2009, the company warned as it reported a $2.5 billion loss for the quarter.

It will look to raise an additional $5 billion in cash, in addition to the earlier $15 billion it previously said it planned to raise.

New cost-cutting moves would include $2.5 billion in capital spending reductions, a $500 million reduction in salaried worker expenses and $1.5 billion in additional structural cost reductions in North America.

The company's cash and liquidity position fell to $16.2 billion at the end of the quarter compared with $21 billion at June 30. GM has said it must maintain $ 11 billion to $14 billion in cash.

GM said it is on track to complete $10 billion of its fundraising plans by 2009. But the global financial turmoil has cast uncertainty on GM's plan to raise $2 billion to $3 billion through capital market activity. GM said it has $ 20 billion in unencumbered assets to leverage for secured debt, but " inaccessible" credit markets have put that cash out of reach.

In announcing the need for further cuts, GM is now planning for U.S. auto sales of 11.7 million cars and trucks in 2008 and 12.7 million in 2009, down from the 14 million it planned on in June.

Cost reductions will include further production cuts deeper reductions in its salaried workforce. GM increased its salaried cost reduction target to 30% in Canada and the U.S. up from an early goal of 20%. GM also will extend cuts into the slumping Western European region.

The third-quarter results suggest that GM, in cost-cutting mode since 2005, is running out of options to keep its business afloat amid worsening conditions.

Like Chrysler and Ford Motor Co. (F), GM is seeking financial assistance from the U.S. government. Ford said Friday that it was among auto makers looking for a total of 40 billion euros in loans from European governments.

"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," said GM Chairman and Chief Executive Rick Wagoner in a release.

The company reported a net loss of $2.5 billion, or $4.45 a share in the latest quarter, worse than analysts' expectations.

GM pointed to "moderating" demand in China, Australia and India, with Latin America, Africa and the Middle East the only region to report higher year-on- year profits.

What started as a tough year in the U.S. has become what GM described this week as the worst sales environment since the end of World War II.

GM posted an eye-popping 45% sales decline in October, with demand for profitable pickup trucks and sport-utility vehicles down even further.

Toyota Motor Corp. (TM), which has overtaken GM as the world's largest auto maker, this week cut its full-year earnings forecast by more than half after reporting a 69% drop in fiscal second-quarter profits.

Earlier Friday, Ford announced wide-ranging cost cuts after burning through $ 7.7 billion in cash in the third quarter, as revenue plunged in a rapidly deteriorating auto market. Ford reported a 22% decline in net revenue in announcing a $3 billion operating loss for the quarter.

-By Sharon Terlep, Dow Jones Newswires; 248-204-5532; sharon.terlep@dowjones.com