Friday, November 7, 2008

General Motors to Report $2.5 Billion Third Quarter Loss

General Motors Corp. (GM) has reported a $2.5 billion loss in the third quarter and warned that it could run out of cash in 2009 if the United States economic slump continues and it does not get government aid.

Recently, GM has suspended its ambition to acquire Chrysler. According to GM, the acquisition of Chrysler was considered as a strategic acquisition. GM believes that the acquisition could potentially provide significant advantages.

GM reported that its cash burn for the quarter accelerate to $6.9 billion and the bailout from the government would be highly important because of the slow economy and credit crisis. If the company is running out of cash, generally, it can sell assets, cut costs or file for bankruptcy protection to keep creditors at bay while they develop a financial reorganization plan. However, according to Rick Wagoner, a GM Chairman and CEO, the company will take every action that needed to avoid bankruptcy.

GM has also reported that it will indefinitely lay off about 3,600 employees beginning early next year as it slows production at 10 of its assembly plants. The news came hours after Ford Motor Co. reported that it has lost $129 million for its third quarter and will cut about 2,260 more employees in North America as the industry tries to weather the worst economic downturn in decades.

GM, the US’s largest domestic automaker, has reported a net loss of $4.45 per share during the quarter, compared with a record-setting loss of $39 billion, or $68.85 per share, a year ago. The adjusted loss of the company was $4.2 billion, or $7.35 per share, with an adjusted loss of $2.8 billion for its automotive operations. Moreover, the revenue fell to $37.9 billion from $43.7 billion, due to the deterioration of U.S. and global economies. The loss has exceeded Wall Street’s estimation. Analysts surveyed by Thomson Reuters predicted a loss of $3.70 per share on sales of $39.4 billion.

GM has announced that it would improve liquidity by $5 billion by the end of next year by reducing sales promotions, cutting capital spending, and further cutting production in the first quarter. Moreover, the company has also suspended its matching contribution for employee 401K plans, and suspended tuition reimbursement. It means that the salaried employees will not get incentive pay next year for their work in 2008.

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