The General on its knees

GENERAL Motors (GM) has announced its fifth consecutive quarterly financial loss for the three months from July to September, just a week after revealing a 45 per cent sales plunge in October.

On top of an extra $US15 billion in liquidity announced in July, GM also on Friday identified measures to increase its cash reserves by a further $US5 billion before the end of 2009, including production cuts for some of its top-selling models and development delays for key new models.

However, GM also revealed it may run out of operating cash before mid-2009 - unless global markets undergo a miraculous recovery next year or GM receives a substantial cash injection.

“Even if GM implements the planned operating actions that are substantially within its control, GM's estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business,” said GM in its November 7 statement.

“Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing.

“The success of GM's plans necessarily depends on other factors, including global economic conditions and the level of automotive sales, particularly in the United States and Western Europe,” said GM.

The dire warning accompanied the release of figures showing GM posted a net loss of $US2.5 billion or $US4.45 per share for the third quarter, including special items. On an adjusted basis, GM lost $US4.2 billion or $US7.35 per share, compared with a net loss from continuing operations of $US1.6 billion or $US 2.86 per share in the same period last year. Revenue for the third quarter was $US37.9 billion - down $US5.8 billion from $US43.7 billion in Q3 2007 – and GM ended the third quarter with $US16.2 billion in cash, down from $US 21 billion on June 30. GMAC, which is 49 per cent owned by GM, accounted for $US1.2 billion of GM's loss.

GM’s global sales fell 11 per cent in the quarter to 2.1 million vehicles, while its market share fell 0.7 percentage points from 13 per cent in Q3 2007 – due mostly to sales drops in North America and Western Europe.

GM North America experienced the biggest sales decline in the GM world during Q3 with a 19 per cent tumble, while “rapid auto market contraction” in Europe and Asia-Pacific nations (most notably Chjna, India and Australia) was partly offset by stronger sales results in the GM Latin America, Africa and Middle East (GMLAAM) region.

GM’s latest $US5 billion liquidity increase includes $US2.5 billion in reduced capital spending (from $US7.2 to $US4.8 billion), $1.5 billion in structural cost reductions and $US500 million in salary cuts. Including measures announced in July, GM has shed more than 7000 salaried and contract positions.

Instead of closing more plants, however, GM will lay-off about 3600 factory floor workers across 10 plants indefinitely from January as it seeks to meet the slower demand for new vehicles by slowing production line speeds and idling plants for several weeks.

“Every automaker is having to adjust portfolios and spending plans to some degree, due to the rapidly changing business conditions and increasing challenging regulatory requirements. Lengthening product lifecycles is a common response to these pressures,” said GM.

According to Automotive News, production of GM’s top-selling Chevrolet Malibu, Cadillac CTS and Buick Enclave will be trimmed, but the company insists it remains on track to launch 22 new models in its largest markets – the US, China and Europe – in 2009 and a further 19 in 2010.

It said spending on the Volt hybrid will be increased, and that 14 of the 22 new models it will launch in the US by the end of 2010 will be “fuel-efficient cars or crossovers, including the Cadillac CTS wagon and SRX crossover, Chevrolet Camaro Coupe and Equinox crossover in 2009, and Saab 9-4x crossover, Chevrolet Cruze small car in 2010. Of course, GM wasn’t alone in posting poor Q3 profit results, with the Ford Motor Company posting a $US3.0 billion after-tax operating loss for the third quarter (up from $US24 million in Q3 2007) and revealing it will also further cut costs to improve its liquidity.

Also on Friday, Ford announced production shutdowns for varying lengths at 11 of its US plants in order to trim its fourth-quarter production by 40,000 units to 430,000. The measure is in addition to Ford’s plan to lift its liquidity by $US14 billion to $US17 billion by the end of 2010 – via $US8-9 billion in operating costs cuts and $US6-8 billion in financing actions including sales of none-core assets.

“With our present assumptions, we're comfortable with the liquidity position we've got,” said Ford CFO Lewis Booth. “We're putting in place a lot of actions to make sure we stay comfortable with that liquidity position.” Both GM and Ford have forecast even worse results next year, when GM has forecast total US industry sales of 11.7 million - the lowest since 1982 – before recovering to 12.7 million in 2010.

Similarly, Toyota shares dived as much as 13 per cent on Friday after a newspaper reported its global operating profit could fall below 1 trillion yen ($US10 billion) in the year to March 2009 - less than half of the previous year’s profit.

The reality was much worse, in fact, with Toyota waiting until after the market closed to reveal a profit forecast of 600 billion yen – down 60 per cent on its previous estimate and the company’s lowest since 1995/96.

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