Automakers need to raise cash to buy time

By David Bailey and Kevin Krolicki - Analysis

DETROIT (Reuters) - For analysts weighing the odds of survival for the embattled U.S. automakers, two measures now loom largest: remaining cash and time remaining until 2010.

With U.S. auto sales at 15-year lows, General Motors Corp, Ford Motor Co and Chrysler LLC have been forced to rewrite restructuring plans on the fly in recent weeks by slashing production of slow-selling trucks.

But continued cash burn is driving consideration of steps to raise liquidity between now and 2010, when the automakers capture billions of dollars in savings on health-care costs from new contracts with the United Auto Workers union.

"It's a very difficult period, and it's all about cash," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan. "There are multiple options, but the real question is how they deal with this cash monster."

Analysts say GM could tap the capital markets as Ford did with a $23-billion secured offering in late 2006.

Meanwhile, Ford is expected to face pressure to take up an offer from billionaire investor Kirk Kerkorian to infuse new capital, possibly through new common or preferred stock.

"They all have moved to cut their cost structures, but the market has simply moved a lot faster than their ability to keep up," Fitch Ratings managing director Mark Oline said.

GM, which ended the first quarter with $31 billion in cash and undrawn credit, is in danger of burning through much of that by 2010, analysts have said.

Ford is in slightly better shape with cash and undrawn credit of $41 billion at the end of the first quarter.

Privately held Chrysler, now controlled by Cerberus Capital Management, has said it ended 2007 with about $9 billion. Last week, it drew a $2-billion credit line from Cerberus and former parent Daimler AG.

GAME PLANNING TO AVOID GAME OVER

Because GM needs a liquidity cushion to pay suppliers and fund sprawling operations, analysts agree the automaker will need to raise between $5 billion and $10 billion.

But securing financing for GM in 2008 will be much harder than it was for Ford, said Gimme Credit analyst Shelly Lombard. "GM does have an opportunity, but it's not as much of a slam dunk as when Ford did it," she said.

Oline said it would be "prudent" for Ford and GM to both raise capital. Fitch downgraded GM and Chrysler with a negative outlook last week and said it was unlikely Ford's ratings would remain intact.

"I think they will raise as much as the markets will give them," Oline said.