IE 11 is not supported. For an optimal experience visit our site on another browser.

GM, Ford post huge losses as crisis deepens

General Motors and Ford reported Friday that they hemorrhaged cash in the third quarter, offering more evidence that the nation’s automobile industry is on the brink of a meltdown.
/ Source: news services

General Motors and Ford reported Friday that they hemorrhaged cash in the third quarter,  offering more evidence that the nation’s automobile industry is on the brink of a meltdown.

GM said it lost $2.5 billion in the third quarter and warned that it could run out of cash in 2009. The nation’s biggest automaker also said it has suspended talks to acquire its smaller U.S. rival Chrysler.

Ford, meanwhile, said it lost $129 million in the third quarter and will eliminate another 2,260 white-collar jobs as it battles the economic downturn, credit crisis and weak environment for car sales. Ford burned through $7.7 billion in cash in the quarter.

“The third quarter was especially challenging for the auto industry," GM Chairman and CEO Rick Wagoner said in a statement. "Consumer spending, which represents close to 70 percent of the U.S. economy, fell dramatically, and the abrupt closure of credit markets created a downward spiral in vehicle sales.”

GM's loss exceeded Wall Street estimates, and the company announced a range of moves to improve its financial position.

But the company surprised Wall Street by announcing it had suspended talks to acquire Chrysler. GM did not refer to Chrysler by name but said it had set aside considerations for a “strategic acquisition.”

“While the acquisition could potentially have provided significant benefits, the company has concluded that it is more important at the present time to focus on its immediate liquidity challenges and, accordingly, considerations of such a transaction as a near-term priority have been set aside,” the company said in a statement.

Privately held Chrysler declined to comment on GM’s statement, but added it remains focused on returning to profitability.

GM announced it would improve liquidity by $5 billion by the end of next year by cutting capital spending, reducing sales promotions and further cutting production in the first quarter.

About 3,600 workers will be laid off indefinitely beginning early next year as the automaker slows down production at 10 of its assembly plants.

The company also suspended its matching contribution for employee 401(k) plans and suspended tuition reimbursement. In addition, salaried employees will not get incentive pay next year for their work in 2008, GM said.

In a conference call with reporters and analysts, Wagoner said the company will “take every action we possibly can” to avoid bankruptcy.

“We’re convinced that the consequences of bankruptcy would be dire,” he said. “We need to find a way to get through this, and that’s really our focus.”

Ford said it lost 6 cents per share for the quarter, compared with a loss of $380 million, or 19 cents per share, a year ago.

“While Ford has been dramatically affected by the difficult business environment, we remain absolutely convinced that we have the right plan and are taking the right actions to weather this difficult period and emerge as a lean, globally integrated company poised for long-term profitable growth,” Alan Mulally, president and chief executive, told industry analysts during a teleconference.

GM reported a net loss of $4.45 per share during the quarter, compared with a record-setting loss of $39 billion, or $68.85 per share, a year ago. Revenue fell to $37.9 billion from $43.7 billion, due largely to the global credit crisis.

GM said it had $16.2 billion in cash, marketable securities and readily available assets at the end of September, down $4.8 billion from the $21 billion it reported on June 30. Wagoner reiterated that the company needs a minimum of $11 billion to $14 billion to operate.

Ford posted a pretax loss of $2.7 billion from continuing operations. But it was offset partly by a $2 billion gain as the company shifted retiree health care liabilities to a trust run by the United Auto Workers.

Ford’s global automotive operations had a pretax loss of $2.9 billion for the quarter, compared with a pretax loss of $362 million a year earlier.

Ford Chief Financial Officer Lewis Booth would not say if he expects the cash burn rate will continue at the present levels, but said he was confident the company can make it through 2009.

“With our present assumptions, we are comfortable with our liquidity position,” Booth told reporters. “I think it goes without saying, forecasting the future at the moment is extremely difficult. Trying to find out just exactly what is happening with the consumer is really tough.”

Industry analysts say that if the economy doesn’t improve, Ford could run out of money sometime after 2010.

Ford's job cuts equate to about 10 percent of its North American salaried work force of 22,600. It will reduce the work force primarily through personnel reductions and attrition, Mulally said.

It also said it has no plans to offer more buyout or early retirement packages to blue-collar workers.

The automaker started the year with 89,000 employees in North America but reduced that number to 80,200 as of Sept. 30 through attrition, hirings, buyouts and layoffs.