General Motors and Ford on Friday reported huge third-quarter losses and said they burned through cash at a furious rate.
Before the market opened, Ford Motor said it lost $129 million in the third quarter and burned up $7.7 billion in cash. Later, GM said it lost $2.5 billion and had $6.9 billion in negative cash flow and could run out of cash early in 2009.
The cash-burn numbers at this point are more important than the earnings.
Ford said Friday that it will cut another 10% of its North American salaried work force costs as it tries to conserve cash to weather the worst economic downturn in decades.
Ford's cash burn — in which a company spends more money than it takes in — was far higher than the $2.1 billion it burned through in the second quarter.
Chief Financial Officer Lewis Booth would not say if he expects the cash burn rate will continue at present levels.
"With our present assumptions, we are comfortable with our liquidity position," Booth told reporters Friday morning. "I think it goes without saying, forecasting the future at the moment is extremely difficult. Trying to find out just exactly what is happening with the consumer is really tough."
Industry analysts say that if the economy doesn't improve, Ford could run out of money sometime after 2010.
"It just feels like a matter of time" until one company heads for bankruptcy court, says Kevin Tynan, an analyst at Argus Research. That includes Chrysler, 80.1%-owned by private investment company Cerberus Capital Management and thus not required to disclose profits and losses. Germany's Daimler, which owns the other 19.9%, valued the stake at just $268 million in June and recently wrote it down in the third quarter to $0.
The numbers show the traditional American auto industry is near collapse — so close that industry and labor chiefs have been pleading for a federal bailout to survive. Detroit auto executives and the head of the United Auto Workers union met Thursday with House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., to ask for broader access to low-interest federal loans.
While Americans have been distracted by how to pay for $4 gasoline, or how to retire on 401(k)s that some now bitterly joke have shrunk to 201(k)s, or how to fix the roof when the bank won't cough up a home-equity loan, America's already staggering industrial icons — the Detroit 3 — have been hammered by disappearing sales.
"The plunge in consumer confidence coupled with the difficulty in obtaining credit has caused the near collapse of the auto market in recent months," Troy Clarke, president of GM's North America operations, says. "This may be the most crucial time in the history of our industry."
New vehicle sales have tumbled to a level that, adjusted for population growth, hasn't been this low since just after World War II, an "unsustainably weak level," says Mike DiGiovanni, GM's executive director of global market and industry analysis.
Without significant revenue — never mind profits — from new vehicle sales, Detroit's cash on hand soon may dwindle to where automakers have too little to keep up day-to-day operations. GM, for example, needs some $14 billion in the bank at any point just to keep the doors open — make payroll, pay for supplies, put aside money for retirees.