With the good news -- Ford's cool new Fusion and GM's hot upcoming Chevy Volt -- it's easy for some to forget about the dire economic climate for America's top automakers. Today was a stark reminder of the problems that both Ford and GM are facing -- problems which demand drastic action either internally or externally.
Ford led off the bad news by reporting a $3B USD operating loss. In the face of dwindling cash reserves, Ford is cutting 10 percent of its salaried worker expenses via pay cuts such as eliminating merit pay, bonuses and the company's matching contributions to their retirement accounts. It plans on also possibly cutting additional salaried workers.
Hourly workers were hit equally hard. Ford is cutting an additional 2,600 hourly jobs via buyout packages. The company already sold two major assets -- Jaguar and Land Rover -- this year to try to generate the cash it desperately needs. It is looking at potentially selling other brands or resources.
Ford Chief Executive Alan Mulally says he thinks his company is on the right track, but bemoaned that he sees no end in sight for low demand of autos. He states, "We believe the downturn in industry volume will be broader, deeper and longer than previously expected."
Losses are expected to continue until 2010. The quarterly loss was $1.31 a share, much worse than the analyst forecast of 93 cents a share. Ford's sales dropped 25 percent, while it lost $9B USD in revenue, dropping to $32.1B USD for the quarter.
The only good news for Ford is that it still has the largest cash reserve of any U.S. automaker, with $18.9B USD in cash (despite burning through $6.3B USD in cash this quarter).
The news for rival GM is even worse. The company is nearly out of cash after posting a mammoth loss. GM lost $4.2B USD over the quarter, excluding special items. The loss, which amounted to $7.35 a share, blew away analyst expectations, which were predicting a $3.70 a share loss.
After burning through $6.9B USD in cash over the quarter, GM says that it "will approach the minimum amount necessary to operate its business" during the new quarter. In a grim assessment, the company reported that its "estimated liquidity will fall significantly short" of the amount it needs to continue operating.
Dave Cole, chairman of Michigan think-tank the Center for Automotive Research says GM is likely to file for bankruptcy unless the government does something. He states, "This is not something that can go on and be dealt with in the next year, it needs to be dealt with in the next few weeks. When your cash is gone, you're gone."
Some were speculating a merger between GM and Chrysler, but GM says the talks have been tabled to deal with the cash issue. GM is planning to cut 10% of salaried employment costs to go with the 20 percent in cuts already planned. Significant layoffs are expected. The company is also cutting capital spending in 2009 by $2.4B USD, a move likely to set back many of its programs.
GM is weighing its options after losing $72B USD since 2004.
Both Ford and GM met with lawmakers over the last week to plead for new loans. They're asking for the lawmakers to allow them to take a slice of the $700B USD bailout pie, something that lawmakers have thus far emphatically refused. The companies also are asking for the government to double the $25B USD low-interest loans given to them to make fuel efficient cars.