GM Says It May Not Have Enough Cash to Operate This Year

Nov. 7 (Bloomberg) — General Motors Corp., seeking federal aid to avoid collapse, said it used $6.9 billion in cash in the third quarter and may fall below the minimum it needs to operate before the end of this year.

GM said it will be near its minimum threshold for operating cash for the remainder of 2008 and will be “significantly short” of that level by the end of June without an improvement in market conditions, a major asset sale or access to new loans or cash support. GM has said it needs at least $11 billion in cash to pay its bills each month.

“GM is making a pretty direct plea for help,” said Pete Hastings, a fixed-income analyst at Morgan Keegan Inc. in Memphis, Tennessee. “The message is, `we’ve done all the things we can do, and we need help.’ And if we don’t get help, fill in the blank.”

Merger talks are being suspended, GM said. The company had been in discussions about a tie-up with Chrysler LLC, people familiar with the plans had said.

Chief Executive Officer Rick Wagoner and the CEOs of Ford Motor Co. and Chrysler met yesterday with U.S. House and Senate leaders as the automakers seek $50 billion in new government aid, a person familiar with the proposal said.

The third-quarter operating loss was $4.2 billion, or $7.35 a share, GM said today in a statement. Including a non-cash, $4.9 billion one-time gain related to unloading retiree medical bills, the biggest U.S. automaker had a net loss of $2.5 billion, compared with a $38.9 billion year-earlier loss on a tax-accounting charge.

Cash Decline

Cash, equivalents and marketable securities fell to $16.2 billion on Sept. 30, compared with $21 billion at the end of June.

GM fell 52 cents, or 11 percent, to $4.28 at 11:30 a.m. in New York Stock Exchange composite trading.

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

The quarterly gain stemmed from last year’s accord with the United Auto Workers for GM to pay $31.9 billion to a union-run fund that would take on retirees’ medical bills, erasing a $47 billion liability. A federal judge approved the so-called Voluntary Employee Beneficiary Association, or VEBA, on July 31.

GMAC LLC, the auto lender 49 percent owned by GM, said Nov. 4 it had a record $2.5 billion loss as borrowers from its mortgage unit fell behind on their loans. The Detroit-based finance company said its Residential Capital home-loan division may not survive the housing crisis.

GMAC is 51 percent owned by group led by Cerberus Capital Management LP, owner of Chrysler.

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

Last Updated: November 7, 2008 11:48 EST
By Jeff Green and Mike Ramsey

Source: Bloomberg

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