General Motors Says It May Run Out of Operating Cash This Year

By Jeff Green and Mike Ramsey

Nov. 8 (Bloomberg) -- General Motors Corp., seeking U.S. aid to avoid collapse, said it may not have enough cash to keep operating this year and will be ``significantly short'' by the end of June unless the auto market improves or it adds capital.

Available cash fell to $16.2 billion on Sept. 30 from $21 billion at the end of June, the largest U.S. automaker said yesterday as it reported a $4.2 billion third-quarter operating loss. Merger talks with Chrysler LLC were suspended.

``Things are clearly deteriorating more quickly than people expected,'' said Jill Fields, who manages $2 billion in high- yield debt as managing director at Babson Capital Management LLC in Springfield, Massachusetts. ``They're either going to need aid or they're at risk for filing'' for bankruptcy.

GM's outlook and Ford Motor Co.'s $7.7 billion cash burn added urgency to automakers' pleas for government help after a quarter in which U.S. industrywide sales plunged 18 percent. The companies are asking for $50 billion in new loans, a person familiar with the plan said.

Chief Executive Officer Rick Wagoner, Ford's Alan Mulally and Chrysler's Robert Nardelli renewed the push for assistance in meetings with U.S. House and Senate leaders in Washington on Nov. 6. Wagoner said GM also has been in contact with the staff of President-elect Barack Obama.

``We have sufficient liquidity to continue on plan,'' Mulally, 63, said in an interview with Bloomberg Television. Dearborn, Michigan-based Ford reported an operating loss of $2.98 billion.

Ford rose 4 cents to $2.02 in New York Stock Exchange composite trading, paring the shares' decline this year to 70 percent. Detroit-based GM fell 44 cents, or 9.2 percent, to $4.36. The stock has tumbled 82 percent this year.

$73 Billion in Losses

Yesterday's cash forecast was the bleakest yet from GM, which has lost almost $73 billion since the end of 2004. Using $6.9 billion in cash last quarter pushed GM closer to the $11 billion minimum it says is needed to pay bills.

A bankruptcy filing ``would be a disaster far beyond General Motors and a sad chapter in American history,'' Wagoner, 55, said in a Bloomberg Television interview. GM said on Oct. 24 that bankruptcy ``is not an option.''

Should GM take such a step, the result would be 2.5 million jobs lost in the first year among automakers, suppliers and related businesses, according to a Nov. 4 report by the Center for Automotive Research, based in Ann Arbor, Michigan.

Bailout Optimism

A U.S. rescue package for GM, Ford and Chrysler is likely before President George W. Bush leaves office in January, said Dennis Virag, president of Automotive Consulting Group in Ann Arbor.

``Either the federal government provides money for a bailout and lets the industry retool, restructure, and move ahead, or the industry dies,'' Virag told Bloomberg Television.

Babson Capital's Fields said GM and Ford bonds already are trading at ``bankruptcy levels,'' so the automakers are relying on ``a political decision'' to avert that fate. She wouldn't say whether the holdings she manages include GM or Ford debt.

GM's 8.375 percent bond due in July 2033 fell 4.3 cents to 24 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 34.83 percent.

Ford's 7.45 percent note due in July 2031 dropped 3.5 cents to 34 cents on the dollar, yielding 22 percent.

Chrysler Talks

While GM didn't specify any prospective partners in saying merger discussions were being halted, the biggest U.S. automaker had been in negotiations on a tie-up with Auburn Hills, Michigan-based Chrysler, people familiar with the plans said.

Consideration of a strategic acquisition was ``set aside'' to focus on ``immediate liquidity challenges,'' GM said.

GM's per-share operating loss was wider than the average estimate on an adjusted basis of $3.94, based on 10 analysts surveyed by Bloomberg.

Including a non-cash, $4.9 billion one-time gain related to unloading retiree medical bills, GM had a net loss of $2.5 billion, compared with a $38.9 billion year-earlier loss on a tax-accounting charge. GM's auto sales in the U.S., its largest market, fell 21 percent.

GM's cash use in the fourth quarter should be closer to the levels in this year's first and second quarters, when it was about $3.6 billion, Chief Financial Officer Ray Young said on a conference call.

GM said it is trying to boost cash by $20 billion by the end of next year, an increase from a July 15 plan for $15 billion.

Asset sales, a part of the strategy, have been hampered because potential buyers can't get financing, Chief Operating Officer Fritz Henderson said. GM's Hummer brand of sport-utility vehicles is among the businesses on the block.

Ford's Loss

Ford also said it was accelerating savings programs including a 10 percent reduction in salaried-job costs, expanding on a 15 percent slash this year; deeper cuts in production; and a smaller capital-spending budget.

The per-share operating loss of $1.31 was wider than the 93-cent average of 10 analyst estimates compiled by Bloomberg. Revenue plunged 22 percent to $32.1 billion.

The loss for Ford excluded a gain for shedding future retiree medical bills under a new union contract. Including the gain, Ford had a net loss of $129 million, or 6 cents. The net loss a year earlier was $380 million, or 19 cents.

Ford's U.S. auto sales tumbled 25 percent in the quarter.

To contact the reporters on this story: Jeff Green in Detroit at jgreen16@bloomberg.net; Mike Ramsey in Detroit at mramsey6@bloomberg.net.