GM, Ford announce huge losses in 3Q financial results

November 8, Detroit : The two largest US automakers, General Motors Corp. and Ford Motor Co. announced huge losses at the official release of their third quarter financial results on Friday.

In the announcement, companies also acknowledged a steep rise in their rate of cash burn, as a result of the collapsing car sales amidst the current economic meltdown.

Amounting to a collective total of $14.6 billion cash depletion, General Motors Corp., individually ran through $6.9 billion of cash while Ford Motor Co. exhausted about $7.7 billion. "The cash burn was quite a bit higher than what would be a normal cash burn," said Ford CEO, Alan Mulally.

As for the stock market holdings, GM shares fell 64 cents or 13 percent, to $4.16. followed by a resultant fall of 5 cents or 2.5 percent, to $1.93 in Ford shares. Thus, both companies' shares have foundered dramatically this year, with GM down 83 percent and Ford down 71 percent.

Alluding towards the risk of bankruptcy, IHS Global Insight analyst George Magliano said that the cash problems cited by the automakers are graver than expected. In one of his statements regarding the possiblity of these companies to file Chapter 11 bankruptcy protection, he said, "It's close. Up until now, we knew the cash numbers were tough, but we didn't know how bad."

However, both the automakers are now planning aggressive cost cutting measures in order to survive in the highly turbulent American auto industry. GM chairman and chief executive Rick Wagoner said the company would "take every action" possible to avoid bankruptcy.

GM said it would cut white-collar jobs and also plans to reduce next year's capital spending budget by $2.5 billion to $4.8 billion. "We are cutting to the bone. What we want to try to do is size the business for this kind of volume level and frankly, put us in much better shape when the industry improves," said Fritz Henderson, GM's president and chief operating officer.

Ford CEO, Mulally stated, "We're managing our cash very carefully." In addition to ratcheting down production of its best-selling F150 pickup in the quarter to prepare for the launch of a new 2009 model, the company would also be cutting the salary expenses by 10 percent. Mulally said that he expects the cash consumption rate to decline in the fourth quarter.

Also, in an attempt to recoup from the worst auto industry scenerio in decades, GM, Ford annd Chrysler are now seeking Federal aid. A combined $50 billion government funding has been demanded from the Congress leaders, to help companies cover the health-care obligations for an estimated 770,000 of their retirees and dependents in particular, and to support in withstanding the heavy economic turbulence in general.