As Ford and GM Bleed Cash, A More Urgent Push for Loans
Saturday, November 8, 2008
General Motors and Ford, struggling with the sharpest decline in auto sales in more than two decades, are rapidly burning through their cash with GM saying it likely will only have "the minimum amount necessary to operate its business" through the rest of the year.
The companies' plight added new urgency to the debate over whether Washington should offer an additional $25 billion in new loans to the automakers.
In his first news conference since the election, President-elect Barack Obama yesterday said aiding the industry would be one of his top priorities.
"The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil," he said.
The automakers blamed their dwindling cash position on an industry-wide slowdown in sales and the credit crisis, which has made it difficult to borrow money. GM devoured $6.9 billion during the three months ending Sept. 30 and said it is moving to cut spending and sell some product lines. It said it has called off merger talks with Chrysler.
Even with those actions, the company said it will "fall significantly short" of the cash it needs in 2009 unless the economy improves and the government offers financial assistance.
"I doubt there's anyone who disputes that we're operating in very challenging times, certainly one of the most challenging in the history of the U.S. auto industry," said G. Richard Wagoner Jr., GM's chairman and chief executive.
Wagoner dismissed talk that the company may need to file for bankruptcy protection. Some industry analysts have warned that the consequences could be widely felt by auto parts suppliers and the automakers who depend on them.
"We're convinced that the consequences of bankruptcy would be dire," Wagoner said.
Ford consumed $7.7 billion during the third quarter, depleting its reserves to $18.9 billion. With a $10.7 billion credit line still available, Ford executives said they were comfortable -- for now -- with their liquidity position. But they, too, said they would like the option of receiving government aid.
"The most important thing we want to do is make sure we have this dialogue and we have, you know, mechanisms in place," Ford chief executive Alan Mulally said. "So if [the economy] deteriorated substantially we'd be able to access a bridge loan and pay it back and get through the downturn and keep this very important industry alive."
The companies described their cash situation while reporting their financial results for the third quarter yesterday. GM posted a third-quarter net loss of $2.5 billion ($4.45 a share) that included a one-time gain, compared to a loss of $42.5 billion ($75.12) a year earlier when it took a noncash charge of $38.3 billion on deferred tax assets.