GM says it is running out of cash

08.11.2008 22:04 Shopping - Source: toledoblade.com

“We’re convinced that the consequences of bankruptcy would be dire,” he said, adding that the company would use every source of potential funding.

GM also planned more job cuts, including 5,500 more salaried and factory workers. But company officials cautioned that those measures alone would not be enough and that federal aid is essential.

Ford saw its cash supply decline rapidly and announced job cuts yesterday. But Ford is in better shape because it borrowed billions of dollars in 2007 by mortgaging its factories.

The Dearborn manufacturer said it had enough cash to make it through 2009.

The government faces a difficult choice about GM.

If it provides GM with a bailout, there is no guarantee the company will not need more money later to stay out of bankruptcy.

But a bankruptcy by GM or any other U.S. automaker would have far-reaching consequences, given the millions of people employed by supplier companies, dealers, and other small businesses that are dependent on the industry.

A bankruptcy filing by GM also would likely scare off many consumers, hurting any chances for a revival.

President-elect Barack Obama signaled his intentions to help the auto industry, calling it “the backbone of American manufacturing” during a news conference.

“I have made it a high priority for my transition team to work on additional policy options to help the auto industry adjust, weather the financial crisis, and succeed in producing fuel-efficient cars here in the United States of America,” he said.

Congress already has provided $25 billion in low-interest loans to help car companies build fuel-efficient vehicles.

But the Bush Administration, thus far, has balked at providing any additional financing.

The chief executives of GM, Ford, and Chrysler have been lobbying in Washington for more help. They met Thursday with the House Democratic leadership to plead their case for at least $25 billion in additional loans to carry the industry through its worst sales downturn in 15 years.

Congressional leaders expressed some support for the Detroit automakers, without making specific promises.

The release of worse-than-expected earnings reports by GM and Ford may add pressure to act sooner.

GM said it lost $2.5 billion during the quarter, excluding special charges, and its cash hoard shrank by $6.9 billion during the three-month period, leaving it perilously close to the minimum levels needed to finance its operations.

While Ford is not running out of cash as fast as GM, the company said that its automotive operations lost $129 million in the third quarter.

Ford’s chief executive, Alan R. Mulally, said the industry needed help from the government soon.

“I think it’s important to address it as soon as possible,” he said.

Despite shedding more than 100,000 jobs since 2006 and closing factories nationwide, the Detroit automakers cannot cut their costs fast enough to keep up with the declining market for new cars and trucks.

Industry sales in the United States have fallen 14.6 percent this year, including a dismal 31.9 percent drop in October.

Sales began declining in the spring because of rising gas prices, but have since gotten worse. The sales rate in October was the lowest recorded in 25 years. Analysts predict the market will remain weak into 2009.

About 3 million American jobs are directly tied to the Detroit automakers, said David Cole, chairman of the Center for Automotive Research in Ann Arbor.

A federal bailout, Mr. Cole said, is essential to prevent the rippling economic impact of a failure of one or more of the Detroit companies.

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