GM abandons Chrysler bid, warns of severe liquidity crisis

08 November 2008

The Big Three of American auto is not going to become the Big Two, at least not in the immediate future. The country's No 1 automaker General Motors (GM), after posting a $2.5 billion quarterly loss on Friday, said it had abandoned talks on a possible merger with Chrysler because it needed to focus on its liquidity situation.

GM's figures follow similar dismal results reported by its closest rival Ford. With their domestic sales down 20 per cent and 18 per cent, respectively, so far this year, GM and Ford have been spending significantly more money than they're taking in. (See: Ford reports $3 billion Q3 loss; plans further cost cuts)

In the third quarter, revenue at GM fell 13 per cent from a year earlier to $37.9 billion as its monthly cash burn, a key measure of liquidity, increased to $2.3 billion from around $1 billion in the second quarter. Operating losses at GM reached $4.2 billion, excluding special gains related to payments to a retiree health fund.

GM is attempting to sell its Hummer brand as well as parts supplier ACDelco. The cuts the company has made severely curtail its production of even relatively strong models. Now GM is reducing spending on new products and delaying or even canceling launches of some models.

GM also warned that it may run out of money by next year, and pleaded for government support in the form of aid packages, failing which bankruptcy would become a realistic scenario.

"GM's estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business," said Ray Young, GM's chief financial officer. "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 outside help is provided.