GM today announced a third-quarter loss of $4.2 billion on revenues of $37 billion while spending $6.9 billion of their lifeblood-like cash on hand. Although initially we thought the big news here was a cash spend of $2.3 billion per month, compared to around $1.1 billion a month in the previous quarter, but the real story is that GM basically acknowledged what we said first last month that bankruptcy is imminent (and we might add, were laughed at by some members of the auto intelligentsia for it) — as close as the end of the year if GM doesn't receive help.
Why is the cash burn rate so important? GM isn't exactly cash rich and needs to have at least $10 billion to operate and currently has around $15.8 billion on hand. This means that if the current trend continues the company will be unable to operate in approximately three months, meaning that they'll have to declare bankruptcy as we previously outlined. GM itself basically admits this themselves saying:
"Even if GM implements the planned operating actions that are substantially within its control, GM's estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business. Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing."
To summarize: give us some money or we're going to go bankrupt and the economy will have to grapple with the horror of hundreds of thousands of unemployed workers.
