November 7, 2008 / 5:37 PM / 9 years ago

UPDATE 3-GM burns through $7 bln, says faces cash crisis

* Warns it could fall short of minimum cash threshold

* CEO says urgent government help for industry needed

* GM aims to cut costs by another $5 bln through 2009 (Adds analyst quotes, details on cost-cutting, background)

By Kevin Krolicki and Soyoung Kim

DETROIT, Nov 7 (Reuters) - General Motors Corp GM.N burned through $6.9 billion in cash in the third quarter and warned on Friday that its cash holdings would fall short of the minimum needed to run its business without new funding or other drastic action.

The stark warning from the top U.S. automaker raised the stakes for the government rescue package GM and other major American automakers are urging for an industry reeling from a collapse in sales to 25-year lows. Analysts said the looming alternative to a bailout for GM would be bankruptcy.

“We’re convinced that the consequences of bankruptcy would be dire and extend far beyond GM,” said GM Chief Executive Rick Wagoner. “We are going to take every action we possibly can to avoid it, and we are going to use every source of funding.”

Shares of GM and its bonds tumbled. The stock dropped 11 percent after the liquidity warning and a nearly hour-long delay in posting the quarterly results as GM executives changed the wording of the press release.

“Basically, either the government helps them out or they are going to have to declare bankruptcy. There don’t seem to be any other options,” said Aaron Bragman, an analyst with IHS Global Insight.

Scrapping efforts for a merger that threatened tens of thousands of jobs, GM made clear it had set aside its pursuit of an acquisition of Chrysler LLC. That deal was effectively scuttled last week when the Bush administration turned down a request for up to $10 billion to fund it, sources have said.

Without mentioning Chrysler by name, GM said its priority now was cost-cutting and other urgent steps to free up $20 billion in liquidity through 2009 under the third round of restructuring it has announced since June.

“We’ve concluded at this particular time that it’s important that we put 100 percent of our efforts on the immediate liquidity challenges,” Wagoner said.

GM said it would delay the planned launches of upcoming models over the next two years, slow production at factories, trim inventories, and cut 30 percent of its white-collar payroll costs in North America, dismissing workers if buyouts fail to deliver enough savings.

Combined with a more than $2 billion cut to planned capital investment in 2009, GM said it expects those steps to deliver $5 billion in cash savings through the end of next year. [ID:nN07407223]

The Detroit-based automaker said it was on track to free up another $10 billion in cash under the terms of a restructuring it announced in July. It said it was pushing ahead with a bid to sell its Hummer SUV line, a plant in Strasbourg, France, and its ACDelco parts business, which has $1.5 billion in revenue.

GM ended September with $16.2 billion, down from $21 billion at the end of the second quarter. Through the first nine months of 2008, it burned through more than $14 billion.

Without a recovery in sales, more aggressive cost-cutting or new funding, GM said would be close to the minimum cash level needed to run its business by year-end. It warned it would “fall significantly short” of its minimum cash holding level in the first two quarters of 2009.

GM has said it needs $11 billion to $14 billion on hand to run its auto operations and pay suppliers.

The grim news comes as GM joins with Ford Motor Co F.N, Chrysler and the United Auto Workers union in pressing for a U.S. government rescue package that backers say is needed to keep the industry from collapse. U.S. auto sales plunged to 25-year lows last month.

GM said it had been unable to borrow the $3 billion it had counted on as part of its July restructuring plan.

“It’s pretty ugly,” said Pete Hastings, fixed income analyst at Morgan Keegan. “I am not sure they can do much more than the laundry list of steps they have taken to try and preserve cash. They are trying to state emphatically they need a bailout, and the alternatives are fairly obvious.”

‘PLEA FOR HELP’

GM posted a worse-than-expected operating loss of $4.2 billion for the third quarter, excluding one-time items. Its net loss of $2.5 billion took its combined losses for the year to date to $21 billion.

Revenue fell to $37.9 billion from $43.7 billion a year earlier.

JP Morgan analyst Himanshu Patel said GM’s presentation of its quarterly results amounted to a “plea for help” directed at an audience beyond its investors.

GM’s global sales dropped 11 percent in the third quarter, led by a nearly 19 percent slide in North America. Sales in Europe were down 7 percent, while Asian sales fell 3 percent.

GM also cut its forecast for industrywide U.S. light vehicle sales for 2009 and 2010. It now expects overall sales of 11.7 million vehicles in 2009 and 12.7 million in 2010. By comparison, industrywide sales were 16.1 million in 2007.

Earlier on Friday, Ford posted a worse-than-expected quarterly loss, announced new cost-cutting and said it would explore asset sales. Ford burned through $7.7 billion during the third quarter. [ID:nN07546963]

GM shares were down 34 cents, or 7 percent, to $4.46 in afternoon trade. The shares have fallen 80 percent this year. Trading in the stock on the New York Stock Exchange was briefly halted Friday morning after GM missed its planned time for reporting quarterly results at 10:30 a.m.

GM debt trades at deeply distressed levels, meaning investors see a high likelihood of default. Its 8.375 percent bond maturing in July 2033 fell 3.3 cents on the dollar to 25 cents, pushing the yield up to 33.45 percent, bond pricing service Trace said. (Editing by Dave Zimmerman and John Wallace)

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