GM Says It Needs Cash, and Fast (Update2)

Updated from 1:04 p.m. EST

General Motors ( GM) posted a multibillion-dollar loss for the third quarter and warned Friday that its cash position is going to become more precarious unless the economy improves or it manages to get some kind of assistance.

The Detroit-based automaker reported a loss of $2.5 billion, or $4.45 a share, for the quarter, including items. In the same period a year earlier, GM had a loss from continuing operations of $42.5 billion, which counted a noncash charge of $38.3 billion.

"Tight credit, rising unemployment, declining income, falling stock markets and continuing deterioration in the housing market in the U.S., resulted in an abrupt halt in consumer spending, with most consumers exiting the vehicle market," GM said in a press release. "Many of those still intending to purchase vehicles were denied financing, or found the cost of financing prohibitive."

Far more troubling than the quarterly loss were GM's comments about its liquidity. During the third-quarter, GM had negative adjusted operating cash flow of $6.9 billion. The company also drew down the remaining $3.5 billion from its secured revolving credit facility and made $1.2 billion in bankruptcy-related payments to parts supplier Delphi.

GM believes its operating cash flow in the fourth quarter will be "much improved" from the third quarter and more consistent with the first half of the year, and it has identified an additional $5 billion of "incremental liquidity actions." All told, GM has taken steps to improve its liquidity by $20 billion through 2009.

However, GM cautioned that even by following its plan, its estimated liquidity for the rest of this year "will approach the minimum amount necessary to operate its business."

Looking into the first half of next year, the company's estimated liquidity "will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing."

Rick Wagoner, the chairman and CEO of GM, said in a statement that "the U.S. government's actions to help stabilize the credit markets and eventually ease the credit crunch are an essential first step to the economy's and the auto industry's recovery, but further strong action is required."

Wagoner, along with the heads of Ford and Chrysler and the leader of the United Auto Workers union, asked congressional Democrats this week for more government aid, saying they might be willing to issue warrants to the government in return for capital.

The financing units of Ford and GM were recently granted access to one government program that deals with commercial paper.

Returning to the quarterly results, on an adjusted basis GM lost $4.2 billion, or $7.35 a share. Revenue for the third quarter fell to $37.9 billion from $43.7 billion in the year-ago quarter.

GM attributed the drop to "dramatic sales declines across the industry driven by unstable market conditions, instability in the credit markets and dramatic retraction in consumer demand, especially in North America and Europe."

The report came on the same day that Ford ( F) detailed a wider-than-expected third-quarter loss from continuing operations of about $3 billion.

Shares of GM were recently sinking 12% to $4.23. Ford was losing 2.5% to $1.93.

Additionally, auto-parts suppliers Visteon ( VC), Lear ( LEA) and Johnson Controls ( JCI) were trading to the downside. ArvinMeritor ( ARM) though, was gaining 6%.

GM's automotive operation had a loss of $947 million in the third quarter. The company sold 2.1 million vehicles worldwide, down 11% year over year. Sales at GM North America were even worse, falling 19% from the third quarter of 2007. Also, GM said its global market share was 13%, a decrease of 0.7 percentage points.

GMAC, the financing unit in which GM owns a 49% stake, lost $2.5 billion in the quarter. GM reported an adjusted loss of $1.2 billion for the quarter that was attributable to GMAC.

This article was written by a staff member of TheStreet.com.

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