GM, Ford Losses Deepen; Industry Outlook in Doubt
General Motors and Ford Motor reported far deeper-than-expected quarterly losses Friday, and said their rate of cash burn was accelerating, as an extended slump in car sales raised questions about the future of the U.S. auto industry.
Both companies said they would take aggressive steps to cut their costs even further, after the world's No. 1 automaker, Toyota Motor of Japan, slashed its profit forecast for the year.
GM shares tumbled 12 percent as it and Ford said they collectively burned through $14.6 billion in cash in the quarter as they run up bills related to restructuring actions and face a deepening global financial crisis.
Chrysler LLC is also burning through cash quickly, sources said.
GM also said it had set aside consideration of an acquisition of smaller rival Chrysler, saying its priority was now on cost-cutting and other urgent steps to free up $20 billion in liquidity through 2009.
The news came the day after the heads of Ford, Chrysler and GM—once called the Big Three due to their dominance of the industry—went to the US Congress seeking $50 billion in federal aid to help them ride out the crisis. (See what GM CEO Rick Wagoner had to say to CNBC's Phil Lebeau, left.)
"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," said GM Chief Executive Rick Wagoner, in a statement.
The largest U.S. automaker reported a $4.2 billion quarterly loss and said it would cut white-collar jobs and slash next year's capital spending budget by $2.5 billion as it seeks to cope with a sharp sales slowdown.
Ford posted a $2.98 billion quarterly operating loss Friday and told investors that it would look to cut salary expenses by 10 percent, a move that follows a 15 percent cut earlier this year.
"We will continue to aggressively reduce costs and manage our cash with absolute discipline," said Lewis Booth, Ford's chief financial officer, in a statement. (Ford CEO Alan Mulally discusses Ford's situation with Phil Lebeau, left.)
Demand for cars is collapsing around the world as fears of possibly deep recessions in the United States and Europe prompt consumers to put off big-ticket purchases and a worldwide credit crunch makes it harder for those who are interested in buying cars to get loans.
Ford said it depleted its cash by $7.7 billion—almost 30 percent—during the quarter as it had to pay costs related to production cuts and make upfront payments to Ford Credit in an effort to spur consumers to buy automobiles.
GM went through $6.9 billion in cash during the quarter.
Privately owned Chrysler, which does not report financial information, is also rapidly spending its cash, according to people with knowledge of the situation. Chrysler and its owner, Cerberus Capital Management LP declined comment.
Ford's 7.45 percent bonds due in 2031 were little changed on Friday at about 28.5 cents on the dollar, yielding more than 26 percent, versus 28 cents on Thursday.
Both companies' shares have tumbled dramatically so far this year, with Ford down 71 percent and GM down 83 percent, far deeper slides than the 43 percent fall of the global Dow Jones Automobiles & Parts Titans 30 index.
In Germany both BMW, the world's largest premium carmaker, and its archrival Mercedes-Benz Cars of Daimler, posted sharp unit sales declines in October, citing continued weakness in U.S. and western European markets.
BMW suffered a comparatively mild 8.3 percent decline in group sales to 113,005 vehicles in October, while Mercedes-Benz Cars saw volumes fall 18.1 percent to 82,500 units.
Both BMW and Mercedes have reduced profit forecasts for their automobile businesses in two consecutive quarters following a sharp drop in demand.
Porsche posted a 46 percent rise in pretax profit for the 12 months ended in July that easily topped analysts' forecasts.
The growth was largely the result of better-than-expected returns from hedging strategies on shares of Volkswagen.
Car sales around the world are stalling, and analysts said Toyota's policy of breakneck expansion has left it especially exposed to an industry crunch brought on by the global financial crisis.
Nissan Motor and Suzuki Motor also issued profit warnings last month.