DETROIT General Motors Corp and Ford Motor Co posted more than $27 billion of net losses in the first half of 2008 -- and that was before a deepening economic slowdown pushed industry sales beyond 15-year lows.
What either automaker will report for an encore in the third quarter could be overwhelmed by the potential merger of Chrysler LLC into GM or various other scenarios of some or all of the Auburn Hills, Michigan automaker being sold.
Both are expected to post dismal third-quarter results on Friday, capping off a disastrous week that started with reports that U.S. auto sales plunged to the lowest annualized rate in a quarter century in the first month of the fourth quarter.
Analysts on average expect GM and Ford to post losses of roughly $2 billion each for the third quarter excluding one time items, according to Reuters Estimates.
Cash flow remains key to investors, who saw GM stock fall to a 58-year low and Ford stock to a more than quarter century low in October, as does U.S. consumer confidence, which fell to a record low in October.
A deal to unite GM and Chrysler hit a wall after the Bush administration last week ruled out funding it, leaving any merger between the companies contingent on federal aid under the next administration, people familiar with the talks said.
October sales fell from bad to worse amid the financial sector failures that forced a $700 billion bailout plan in the United States and numerous props for banks in other countries.
"Auto companies just don't make money in a recession," Morgan Stanley analyst Adam Jonas said in an October note to clients referencing the slowdown in European automaker results that is just as relevant for U.S. companies.
While the talks between GM and Chrysler owner Cerberus Capital Management LP have taken most of the spotlight, Ford also has had discussions with policymakers about the challenges facing the industry and the automaker.
"We just want to make sure we continue that ongoing dialogue and make sure that whatever happens there is a degree of parity," Mark Fields, Ford's president of the Americas, told reporters last week.
Ford earlier in 2008 said it would accelerate plans to bring European-designed cars to North America and convert some pickup truck plants to car production. It is expected to provide a business plan update on Friday.
WHERE THE RUBBER HITS THE ROAD
GM's U.S. sales were down more than 20 percent in 2008 through October, while Ford sales were down 18 percent in its core brands. Both lagged the 15 percent industry decline.
In recent years, special charges have been hard to predict for Ford and GM due to massive North American restructurings that have failed to keep pace with eroding markets. They combined for $17.1 billion of charges in the second quarter.
Charges could include costs for white collar job cuts and buyouts of unionized hourly workers. Ford cut white collar expenses in the summer and told the UAW in September that it had about 4,000 more hourly workers than it needed.
GM also has accelerated planned plant closings and slowed production of slower-selling vehicles to control inventory.
GM had about $21 billion of cash and $5 billion of undrawn credit at the end of the second quarter. It burned through $3.6 billion in the quarter, while Ford spent $2.1 billion.
In July, GM laid plans to boost liquidity by $15 billion by the end of 2009 using cost cuts, asset sales and new borrowing. That plan was constructed before the deepest part of the auto industry downturn, which has spread beyond North America.
In October, Standard & Poor's said GM and Ford have adequate liquidity through the rest of 2008, but 2009 could be challenging given the rapid weakening in most global auto markets and the tough capital market conditions.
Analysts on average expect GM to post a $3.51 per share third-quarter loss before charges. The largest U.S. automaker lost $51 billion from 2005 through 2007, and posted losses of more than $18.7 billion in the first half of 2008.
Analysts expect Ford to post a third-quarter loss before charges of 93 cents per share. Ford posted a $100 million first-quarter profit, but later abandoned its goal of a 2009 profit and posted an $8.7 billion second-quarter net loss.
Analysts will also watch to see if GM and Ford cut production. Automakers book revenue when they ship vehicles to dealers, so production cuts have a direct impact on the bottom line and both have cut production to control inventory.
(Additional reporting by Poornima Gupta)