GM: Almost out of cash

[HRx]

NEW YORK (CNNMoney.com) -- General Motors shook an already embattled auto industry Friday as it reported a huge loss that was much worse than expected and warned it is in danger of running out of cash in the coming months.

GM, the nation's largest automaker, reported it lost $4.2 billion, or $7.35 a share, excluding special items. That's up from the loss $1.6 billion or $2.86 a share it reported a year earlier and was far worse than the forecast of analysts surveyed by earnings tracker Thomson Reuters, which had forecast a loss of $3.70 a share.

But the most shocking news came in its statements about its cash position. GM said it had burned through $6.9 billion during the quarter and warned that it "will approach the minimum amount necessary to operate its business" during the current quarter.

In addition, the company said that in the first half of next year its "estimated liquidity will fall significantly short" of what it needs to continue operating. It said the only thing that would save it would be a significant improvement in economic and automotive industry conditions, help from the federal government, better access to capital markets or some combination of those options.

The report was by far the most grim assessment by a company that has insisted it is not considering filing for bankruptcy court protection. While the release did not mention the threat of bankruptcy, the outlook appeared to raise the possibility of such a dramatic step.

Dave Cole, chairman of the Michigan think tank the Center for Automotive Research, said the chances that GM would be forced to file for bankruptcy were high unless Congress takes almost immediate action to bail out the industry.

"This is not something that can go on and be dealt with in the next year, it needs to be dealt with in the next few weeks," said Cole. "When your cash is gone, you're gone."

The company announced a series of additional job cuts and spending cuts designed to help it improve its cash reserves by $5 billion. But it warned that even those steps would not be enough unless conditions outside its control improve.

"The company has engaged in discussions with various U.S. federal government agencies and congressional leaders about the ... the need for immediate government funding support given the economic and credit crisis and its impact on the industry, including consumers, dealers, suppliers and manufacturers," according to a company announcement.

GM CEO Rick Wagoner joined the chief executives of Ford Motor (F, Fortune 500), privately-held Chrysler LLC, as well as the president of the United Auto Workers union Thursday afternoon in meetings with House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., to seek support for a wide-ranging bailout package. Both congressional leaders voiced support for additional help for the sector following their meetings.

Among the topics discussed were a $25 billion loan to fund union-controlled trust funds that would be set up in the coming year to cover the health care costs of retirees and their family members. Shifting about $100 billion of those costs from the automakers' balance sheet to the trust funds was a key concession the companies won from the UAW in the 2007 labor deals.

The discussions also touched upon allowing the automakers to tap into the $700 billion bailout of Wall Street firms and the nation's banks that was passed by Congress last month. Treasury has so far rejected auto-industry inquiries about accessing that pool of money.

The automakers also renewed their pre-election request to double the $25 billion low-interest loan program approved by Congress, as part of energy legislation, to help automakers convert to making more fuel-efficient vehicles in an effort to meet the demands of car buyers and new federal rules.

Shares of GM (GM, Fortune 500), whose trading was halted ahead of the announcement, fell 16% after they resumed.

By Chris Isidore, CNNMoney.com senior writer
Last Updated: November 7, 2008: 11:57 AM ET

http://money.cnn.com/2008/11/07/news/companies/gm/index.htm?postversion=2008110711

[allavdj]

The UAW is going to bankrupt GM before this is all said and done. If the the Fed bails out GM so they can keep paying people $20, $30, $40 per hour to sit around in empty offices because the UAW won't let them lay off employees...I will personally drive to Washington and kick Pelosi and Reed in the ass.

What needs to happen is GM need to trim off a couple thousand employees that are over paid and aren't doing anything. I don't care if they need help from the government, getting rid of the UAW should be a stipulation.

[magyar123]

The UAW is going to bankrupt GM before this is all said and done. If the the Fed bails out GM so they can keep paying people $20, $30, $40 per hour to sit around in empty offices because the UAW won't let them lay off employees...I will personally drive to Washington and kick Pelosi and Reed in the ass.

What needs to happen is GM need to trim off a couple thousand employees that are over paid and aren't doing anything. I don't care if they need help from the government, getting rid of the UAW should be a stipulation.

Getting rid of any union is a death sentence for ALL workers. GM and other US car makers bit themselves when they refused to go with the times making cars more energy sufficient instead of keeping making gas guzzlers.

[WhatMoney]

The UAW is going to bankrupt GM before this is all said and done. If the the Fed bails out GM so they can keep paying people $20, $30, $40 per hour to sit around in empty offices because the UAW won't let them lay off employees
What needs to happen is GM need to trim off a couple thousand employees that are over paid and aren't doing anything. I don't care if they need help from the government, getting rid of the UAW should be a stipulation.

First, anyone sitting around in an office with nothing to do has already been laid off. If they work in an office they are probably exempt salaried employees, and therefore not a UAW member anyway. Blaming the union for all of GM's problems is wrong. GM has laid off nearly 200,000 employees in the last 5 years. Have you been to Detroit lately? Want to pick up a foreclosed home for $500 in a prior GM plant neighborhood? There are many to choose from.

GM will lay off many thousands more this year, UAW or salaried employees, makes no difference. GM lost to Japan automakers in the 1970's because of poor quality unreliable cars. By the time they started making competitive compacts the market had shifted to trucks and SUV's. Now they are behind the curve again and are shutting down SUV plants and laying off more workers.

Where are all the electric and hybrid cars from GM that Toyota and Honda have been selling for years? GM sold all of 843 hybrid vehicles in the first quarter of 2008. Are you blaming the UAW for GM management that is consistently behind their foreign competition?

[allavdj]

Here's a little reading...

http://www.lansingstatejournal.com/article/20081107/NEWS01/811070348/1002/NEWS01

$74.00 PER HOUR GM UAW employees START at around $28 an hour. That's for screwing bolts on to wheels and gluing interior carpet to the floor. It's unrealistic, the UAW has painted GM, Ford, etc into a corner and something is going to have to give. If GM goes outa business...what happens to all those UAW workers then? They will be outa work and have NO office to go sit in and collect a free paycheck. They'll be begging for their $400 bucks a week in unemployement or that $6.50 an hour flipping burgers at Mc Donalds.

GM, Ford, etc need to get with the program. They need to make cars that fit the market and get rid of the unions. The car manufacturers in the south are not union and I don't hear any uproar about terrible working conditions or unreasonable wages. We don't need unions any more. Manufactures will pay people a fair wage, but $76.00 an hour is NOT a fair wage. The market sets what is fair and obviously the market is about to correct the ridiculously high wages these UAW workers are getting.

[banca rotta]

Some of it's the unions and some is the p!ss poor management that made all the bad descisions. While Toyota and Honda were working on hybrids and fuel economy GM still sold suburbans. This is good since people wanted them but when gas went over 4 bucks GM's large cars and truck sales came to a halt. This is management's doing.

What needs to happen first is the retirement benefits must be slashed. I understand this is no good for a retiree but who is getting good retirement benefits anymore (besides CEOs)?

You cannot keep taking a couple of grand of the profits from each car and pay to support those that haven't worked there in 10 or more years. That's just bad business and very dumb.

[WhatMoney]

Did you know that the average GM UAW employee makes $74.00 PER HOUR GM UAW employees START at around $28 an hour.

Nope, those are employee costs including benefits. GM and UAW negotiated those benefits when GM could afford to pay those overly generous benefits.

The current veteran UAW member at GM today has an average base wage of $28.12 an hour, but the cost of benefits, including pension and future retiree health care costs, nearly triples the cost to GM to $78.21, according to the Center for Automotive Research.

By comparison, new hires (UAW members) will be paid between $14 and $16.23 an hour. And even as they start to accumulate raises tied to seniority, the far less lucrative benefit package will limit GM's cost for those employees to $25.65 an hour.

A typical auto worker at a US Toyota plant costs about $55/hour including benefits. Toyota is not running out of money.

[AngelinaCatHub]

GM is working on an all electric car they wish to release in 2010. It is called the Volt, and supposed all electric, but our infrastructure has no charging stations. This car will have a little 3 cylinder engine in it to charge it's battery if you have no place to charge. In the long run, since we are billed on the basis of Current (amperage) usage, what will the "fuel" really cost? Whether electric or gas, the fuel costs. Then how long do you wait while that little engine charges a battery as big as your sofa?

[AngelinaCatHub]

I have posted this fact before, why are we stuck on spark plug engines when diesels were invented to burn soy bean oil.

I have a diesel VW and a Kubota tractor. I can burn a mix of spent French fry oil 2 to 1 with a little diesel to keep the oil from getting rigid in cool weather. Bio diesel has been around for years.

Without damage here is what a diesel can burn:

Diesel oil
Kerosene
Fuel oil
Soy bean oil
Corn oil
Mineral spirits
Turpentine
Benzene
Fish oil
Whale oil
Mineral oil
Caster oil
Peanut oil
Coal oil
Just to name a few

Here is what a diesel cannot burn
Water
Gasoline

I have used our French fry oil for four years on my tractor, without a problem at all.
There is no excuse for us to be held up over gasoline. ‘Hub

[Never_Again]

The biggest reason that diesels are not used more in this country is due to environmental regulations. Little do most of these people know that a diesel produces LESS carbon dioxide and other pollutants than a gasoline engine does. The particulate matter in diesel exhaust is now dealt with by particulate filters.

Hybrid technology is neat, but it is a stopping point on the way to fuel efficiency. The Chevy Volt looks promising, of course, if the domestic coal industry is forced into bankruptcy, as certain politicians have promised to do, electricity may be in short supply as well, and become more expensive.

On a BTU basis, electricity is much more expensive than gasoline for heat energy. However, an electric motor is much more efficient, and produces its energy from magnetism and not heat. Also, given the fact that electric motors produce huge amounts of torque from a stop and at very slow speeds, electric cars generally do not need as much for transmissions as gasoline power, and that creates more advantages as well.

The equivalency of electricity to gasoline is about 60 cents to $1.00 per gallon, depending on your electric rates. Keep in mind that if electricity becomes a wide spread use for motor fuel, the taxes will be added to it.

There is a good discussion of this here:

http://www.physicsforums.com/showthread.php?t=238787

[JRScott]

This is a case of poor management and sadly overreaching by unions. They can file Chapter 11 and restructure themselves in a way to be more profitable. I'd rather see that first than another government bail out we can't afford.

When times were good management just kept making the same products and failed to do adequate research and development. They put all their eggs in one basket, the basket has fallen and the eggs have broken.

Sadly the Union also seeing just good times did not adequately plan. Renegotiation of the labor contracts will be key to saving the big 3.

[JRScott]

At Ford Motor Co. they called it "Blue," a team set up around the year 2000 to design an array of small, fuel-efficient cars to compete with the Japanese. It didn't get far because no one could figure out how to make money on low-priced compacts with Ford's high labor costs.

Besides, the automaker was racking up billions in profits by selling pickups and sport utility vehicles. Times were good and gas was cheap.

"Blue" is only a small blip in automotive history, but it tells a big part of the story about why Detroit automakers are in a mess so critical they could be only months away from bankruptcy.

Democratic leaders in Congress asked the Bush administration on Saturday to provide more aid to the struggling auto industry, which is bleeding cash and jobs as sales have dropped to their lowest level in a quarter-century.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said in a letter to Treasury Secretary Henry Paulson that the administration should consider expanding the $700 billion bailout to include car companies.

Critics say leaders over the years at Ford Motor Co., General Motors Corp. and what is now Chrysler LLC were slow to take on unions, failed to invest enough in new products, ceded the car market to the Japanese and were ill-prepared for the inevitable rise in gas prices that would make their trucks and SUVs obsolete.

"There's been 30 years of denial," said Noel Tichy, a University of Michigan business professor and author who ran General Electric Co.'s leadership program from 1985-87 and once worked as a consultant for Ford. "They did not make themselves competitive. They didn't deal with the union issues, the cost structures long ago, everything that makes a successful company."

Industry representatives, however, say their critics are simplistic, giving them no credit for huge progress this decade in cutting costs, raising productivity, and building competitive cars while handling multiple government regulations and a powerful labor union.

"In the last five years, there's been more restructuring done in the automotive business than any other business in the history of the United States," said Tony Cervone, a GM vice president of communications.

Whatever the reasons, the Detroit Three are closer to collapse than ever, and likely won't make it without billions in government loans.

On Friday, GM posted a $2.5 billion third-quarter loss and ominously said it could run out of money before the end of the year. The company spent $6.9 billion more than it took in for the quarter and reported that it had $16.2 billion in cash available at the end of September.

Ford reported a $129 million loss but said it burned up $7.7 billion in cash for the period. It had $18.9 billion on hand as of Sept. 30. Its chief financial officer says he's confident Ford will make it through 2009, but that's because the company took out a huge loan last year.

Industry analysts believe Chrysler, now a private company that does not have to open its books, is as bad off as GM as U.S. sales continue to plummet because of tight credit and lack of consumer confidence due to the economy.

To survive, automakers are pressing Washington for $50 billion in low-interest loans on top of $25 billion already approved to build more fuel-efficient vehicles. The $25 billion, though, is gummed up in Energy Department regulations and may not be available until next year.

The industry's path to cliff's edge is a complex one that even critics say is intertwined with government fuel economy and safety regulations and the United Auto Workers union.

The demise started in the 80s when Toyota Motor Corp. and Honda Motor Co. mastered building reliable and efficient cars while the Detroit Three lagged behind.

As GM, Ford and Chrysler saw their market share start to slip, the 90s arrived and high profits returned as Americans snapped up pickup trucks and SUVs.

As Honda and Toyota took over the small and mid-size car markets, Ford, GM and Chrysler put most of their resources into trucks and SUVs, which brought in billions in profits that covered growing health care, pension and labor costs.

"In a market-based economy when you have to try to be profitable, you go where the money is," said David Cole, chairman of the Center for Automotive Research in Ann Arbor.

When times were good, the automakers did not take on the UAW, which the companies say drove up their labor costs to $30 per hour more than Japanese companies paid their workers. The figure includes pension and health care costs for hundreds of thousands of retirees.

When GM pushed for changes in 1998, the union went on strike at two key Flint, Mich., parts plants, shutting down the company and costing it about $2 billion in profits.

"They were making money and the union had a monopoly," Cole said. "They'd shut them down. That's why they had some very lengthy strikes that were very painful."

But when the SUV and truck market started to fade in the mid-2000s, executives realized their business model would no longer work and began globalizing their vehicles, streamlining manufacturing processes and developing new and better cars.

The UAW, realizing that the companies were in trouble, agreed to a landmark new contract last year that nearly eliminated the labor cost difference between the Detroit Three and the Japanese, shifting retiree health care costs to a union-administered trust fund.

But just as the cost cuts started to take hold and new products were rolling out, gas prices rose rapidly to around $4 per gallon and Wall Street collapsed, virtually eliminating credit which 60 percent of car buyers need.

"A lot of things sort of coalesced simultaneously," said Tom Libby, senior director of industry analysis for J.D. Power and Associates.

Automakers have all said bankruptcy is not an option because people would not buy cars from a company that might not exist in a few years. But if the car companies run out of money and can't pay the bills, bankruptcy could be forced on them, according to industry analysts.

GM's statements that it may run out of cash this year or next likely will have an effect on sales, Libby said.

"It doesn't help, and they know that," he said.

The current crisis, Cervone says, is not unique to the domestics. Honda and Toyota, he says, also have seen huge sales drops in the U.S. in recent months.

If Detroit gets federal help, the companies that do survive should become profitable next year, Cole said, if the credit market thaws out.

Cole says there's no way at this point the Detroit automakers can survive without federal aid. But if they get it, the ones that do survive should become profitable again next year if the credit markets thaw out.

"They'll get out of it," says Libby. "They've got to do what they've got to do. They're backed up against the wall."

http://www.foxnews.com/story/0,2933,449126,00.html

[AngelinaCatHub]

The biggest reason that diesels are not used more in this country is due to environmental regulations. Little do most of these people know that a diesel produces LESS carbon dioxide and other pollutants than a gasoline engine does. The particulate matter in diesel exhaust is now dealt with by particulate filters.

Hybrid technology is neat, but it is a stopping point on the way to fuel efficiency. The Chevy Volt looks promising, of course, if the domestic coal industry is forced into bankruptcy, as certain politicians have promised to do, electricity may be in short supply as well, and become more expensive.

On a BTU basis, electricity is much more expensive than gasoline for heat energy. However, an electric motor is much more efficient, and produces its energy from magnetism and not heat. Also, given the fact that electric motors produce huge amounts of torque from a stop and at very slow speeds, electric cars generally do not need as much for transmissions as gasoline power, and that creates more advantages as well.

The equivalency of electricity to gasoline is about 60 cents to $1.00 per gallon, depending on your electric rates. Keep in mind that if electricity becomes a wide spread use for motor fuel, the taxes will be added to it.

There is a good discussion of this here:

http://www.physicsforums.com/showthread.php?t=238787

[Never_Again]

Diesel Fuel (furnace oil, kerosene, jet fuel, etc.) has about 144,000 BTU per gallon... Gasoline is 114K, Propane 92K (natural gas is very close) and ethanol is 86K. All per gallon.

Another big part in a diesel engine's efficiency is in the fact that it uses direct injection. This means that fuel is directly injected into the cylinder, bypassing the intake manifold. This technology also makes it easier for a turbo to be used. Many gasoline engines are starting to use direct injection as well, which should allow easier and better use of turbos with gasoline as well, increasing efficiency and power.

[shabam]

Both GM and Ford have divisions overseas which produce nice small and efficient cars. Ford and GM's international divisions are also delivering healthy profits. The problem with the US divisions is both Management and Union based. The Ford Mondeo and focus in Europe are beautiful and well built cars. The Ford Falcon downunder is an awesome family car. From what I have heard the number one reason that they have not been able to bring these cars here is because of the UAW. Who refuse to accept foreign built cars in this country, even from the same company.

Work needs to be merit and performance based, rather than based on bands or years of service. A concept the unions fail to understand and one that has lead to the demise of many other industries in America such as the airline industry. Where companies are forced to keep bitter 40 year old air hostesses.

The first step for these auto manufactures should be to get their design teams and operations out of a dying city and move them somewhere where the ideas and talent pool reflects 2008. The unions also need to step out of the way or fade.