GM's Crippling Burn Rate

It was worse than Wall Street expected. (GM) lost a colossal $4.2 billion. But more dire is the company's cash burn of $6.9 billion, which has GM delaying some new models, cutting deeper into costs and—most important—putting a possible acquisition of rival Chrysler on the back burner.

The dismal results, which were driven by plummeting sales amid a recession and credit crunch (BusinessWeek.com, 11/3/08), show just how precarious GM's financial position is. Without an injection of funds or a bridge loan from the government, GM's $16.2 billion in cash could shrink this year to the minimum the company needs to run the business, which analysts estimate to be between $10 billion and $12 billion.

And the picture could get even uglier. GM announced a series of cuts to save $5 billion in cash, but even with those moves the company could run short in the first half of next year. Standard & Poor's cut GM's credit rating (BusinessWeek.com, 11/7/08), to CCC+ from B- on Friday, citing the company's accelerated cash burn rate. "We expect cash outflows to quickly reduce the company's liquidity during the next few quarters, perhaps to levels that would force GM to consider a financial restructuring, even if it does not file for bankruptcy," said S&P in a statement.

If GM can't complete asset sales, raise money in the financial markets, or get government assistance, the company will be short next year. A financial collapse isn't out of the question.