Can GM and Ford Scrape By?

Just three months ago, General Motors (GM) Chairman and CEO Rick Wagoner said he was moving to secure $15 billion in cash through asset sales, borrowing, and cost cuts that would see the company through to 2009 even in the worst of times.

Barely three months later, with its stock trading at a 54-year low, GM is looking for more ways to save cash. The grim market conditions that underpinned its liquidity plan weren't downbeat enough, it turns out. Several sources inside the company say GM is looking at product delays to save cash, hoping the company can weather the weak economy and liquidity crisis and make it through to 2010.

All but essential programs are at least getting a review, the sources said. Even the next-generation Chevrolet Malibu could be on the table. GM wants each of its cars to get a makeover every 5 years, but it may have to stretch that to 7 years for some models to stay in the black. A GM spokesman says the company is delaying some product programs but that nothing major has been held up yet.

The war gaming around cash savings shows just how tough times have become for Detroit's Big Three. On Monday, Oct. 6, GM's shares fell 52, or nearly 6%, to 8.48, its lowest price since 1954, according to Bloomberg Financial Markets. Ford Motor (F) stock fell 36, or 9%, to 3.69, its lowest since 1984. GM, Ford, and Chrysler have had their credit ratings downgraded as they burn cash and sales plummet. Last month, every major automaker—except GM, which had a big slug of sales to rental fleets and a fire sale—saw sales drop at least 20% (BusinessWeek.com, 10/1/08). Some dropped 30%. With revenue sinking fast, Detroit's carmakers are trying to save every penny.

New Products Intact

GM executives and product planners say nothing is final and that they could reinstate some plans if the market turns around. But the company is still taking a hard look at what can be delayed as the company's shortfall in sales and revenue burns cash.

Sources inside the company say that all new products planned for 2009 and 2010 (BusinessWeek.com, 6/3/08) are intact, because most of the development money has been spent. But there could be a lull in new-vehicle launches in 2011 and 2012 if GM has to delay more plans.

That means GM would have some stale products just as the market is expected to turn around. But as a survival plan, it could work. GM would conserve cash now to make it through the recession and credit crunch. Around 2011 and 2012, when wage cuts and a big health-care deal with the auto workers union are expected to save GM several billion dollars a year, the company would have more money to market its cars while getting the product plan back on track, says James Hall, principal of 2953 Analytics, a Detroit consulting firm.

"By 2011, the union deal starts to pay off and hopefully, the market gets better," Hall says. "GM has cars people want to buy."