GM announces quarterly loss, reports drain on cash reserves
General Motors posts a $4.2-billion third-quarter operating loss. It also signals that it may have only enough cash to fund operations through year-end, sparking speculation about bankruptcy.
General Motors Corp. announced a $4.2-billion third-quarter operating loss and signaled that it may have only enough cash on hand to fund operations through the end of the year.
The news sparked speculation among analysts that a bankruptcy filing could loom for the nation's largest car company.
The troubled automaker said it had a net loss of $4.2 billion on the period, including a one-time gain of $4.9 billion related to a plan to reduce medical costs for retirees. That compares with a $38.9-billion net loss in the third quarter of last year, when the company booked a huge tax accounting charge.
"The third quarter was especially challenging for the auto industry," said GM Chairman and Chief Executive Rick Wagoner. "Consumer spending, which represents close to 70% of the U.S. economy, fell dramatically, and the abrupt closure of credit markets created a downward spiral in vehicle sales."
The company has been slammed by poor sales of its vehicles. Through October, GM's U.S. sales were down 20.3%, worse than the overall industry decline of 14.6%.
Most worrisome was the company's cash burn. GM said it spent $6.9 billion in the period, more than twice as much as it did in the second quarter. At the end of September, GM had $16.2 billion in cash and cash equivalents, down from $21 billion on June 30.
With essentially no outside funding available, GM has been forced to use its own cash reserves. In the second quarter, it burned through that cash at an approximately $1-billion-a-month clip as U.S. auto sales in the period dropped 12% from a year earlier. But in the third quarter, sales slumped further, down more than 18% from the same period in 2007, and cash burn also increased to about $2.3 billion.
Without additional sources of funding, that would give GM scarcely enough money to finish out the year. In its earnings report, the company said that its "estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business," and that its "liquidity will fall significantly short" in the first two quarters of 2009 without improved economic and industry conditions.
Earlier today, Ford Motor Co. reported a $129-million loss for the same period on an operating loss of nearly $3 billion. As with GM, the most worrisome aspect of the report was that Ford burned through $7.7 billion in cash holdings in the quarter, or $2.6 billion a month.
That's well over twice as fast as the company was using its stockpile in the second quarter and leaves the company with less than $19 billion on hand -- enough to last only seven months at the current burn rate.
GM delayed the release of its earnings this morning, causing the New York Stock Exchange to temporarily halt trading in its shares. Before the release, GM shares had traded up 3 cents. Within minutes of the release, which came about 45 minutes late, GM shares were off 15%, to $4.17.
Bensinger is a Times staff writer.
ken.bensinger@latimes.com
