GM burns through $7 billion, says faces cash crisis

By Kevin Krolicki and Soyoung Kim

DETROIT (Reuters) - General Motors Corp burned through $6.9 billion in cash in the third quarter and warned on Friday that its cash holdings would fall short of the minimum needed to run its business without new funding or other drastic action.

The stark warning from the top U.S. automaker raised the stakes for the government rescue package GM and other major American automakers are urging for an industry reeling from a collapse in sales to 25-year lows. Analysts said the looming alternative to a bailout for GM would be bankruptcy.

"We're convinced that the consequences of bankruptcy would be dire and extend far beyond GM," said GM Chief Executive Rick Wagoner. "We are going to take every action we possibly can to avoid it, and we are going to use every source of funding."

Shares of GM and its bonds tumbled. The stock dropped 11 percent after the liquidity warning and a nearly hour-long delay in posting the quarterly results as GM executives changed the wording of the press release.

"Basically, either the government helps them out or they are going to have to declare bankruptcy. There don't seem to be any other options," said Aaron Bragman, an analyst with IHS Global Insight.

Scrapping efforts for a merger that threatened tens of thousands of jobs, GM made clear it had set aside its pursuit of an acquisition of Chrysler LLC. That deal was effectively scuttled last week when the Bush administration turned down a request for up to $10 billion to fund it, sources have said.

Without mentioning Chrysler by name, GM said its priority now was cost-cutting and other urgent steps to free up $20 billion in liquidity through 2009 under the third round of restructuring it has announced since June.

"We've concluded at this particular time that it's important that we put 100 percent of our efforts on the immediate liquidity challenges," Wagoner said.

GM said it would delay the planned launches of upcoming models over the next two years, slow production at factories, trim inventories, and cut 30 percent of its white-collar payroll costs in North America, dismissing workers if buyouts fail to deliver enough savings.

Combined with a more than $2 billion cut to planned capital investment in 2009, GM said it expects those steps to deliver $5 billion in cash savings through the end of next year.

The Detroit-based automaker said it was on track to free up another $10 billion in cash under the terms of a restructuring it announced in July. It said it was pushing ahead with a bid to sell its Hummer SUV line, a plant in Strasbourg, France, and its ACDelco parts business, which has $1.5 billion in revenue.

GM ended September with $16.2 billion, down from $21 billion at the end of the second quarter. Through the first nine months of 2008, it burned through more than $14 billion.

Without a recovery in sales, more aggressive cost-cutting or new funding, GM said would be close to the minimum cash level needed to run its business by year-end. It warned it would "fall significantly short" of its minimum cash holding level in the first two quarters of 2009.

GM has said it needs $11 billion to $14 billion on hand to run its auto operations and pay suppliers.

The grim news comes as GM joins with Ford Motor Co, Chrysler and the United Auto Workers union in pressing for a U.S. government rescue package that backers say is needed to keep the industry from collapse. U.S. auto sales plunged to 25-year lows last month.