- The Washington Times - Saturday, August 2, 2008

General Motors Corp. faces the ominous task of raising revenue by selling cars rather than trucks.

But even with plans to boost production of its fast-selling fuel-efficient models and cut output of unpopular trucks and sport utility vehicles, the company is running short on time if it keeps spending more than $1 billion in cash every month.

GM on Friday reported a second-quarter loss of $15.5 billion, or $27.33 per share - the third-worst quarterly performance in its nearly 100-year history. Through the first half of the year it used up more than $7 billion in cash, including $3.6 billion from April through June.

Company officials seem optimistic that a combination of expense cuts, increased car production and the introduction of new vehicles will slow the cash drain and eventually return GM to the black. But they are still prepared for an economic downturn that could last until 2010.

“Ultimately we’re going to have to grow the business in a tough market,” conceded Chief Financial Officer Ray Young.

The third quarter didn’t start well for the company. On Friday it reported July sales fell 26 percent compared with the same month last year as high gas prices continued to cut into pickup truck and SUV sales. U.S. sales overall fell 13 percent for the month.

The company couldn’t produce enough small and midsize cars to meet demand in the first half, but that should change with additional shifts at car factories, leading to increased sales, Mr. Young said.

GM has said that 18 of its next 19 new products will be cars and crossover vehicles, decisions made years ago in anticipation of the market shift away from trucks. But the company says it can’t move any faster on the new models because machinery has to be purchased and suppliers must gear up to make parts, both of which take several years to accomplish.

In a conference call with reporters and industry analysts, GM officials went to great lengths to explain how they will make it through the downturn. They have $26 billion in cash and credit lines available and plan to raise another $15 billion through cost cuts, borrowing and asset sales for a total of $41 billion.

Chief Operating Officer and President Fritz Henderson said the company needs at least $11 billion to $14 billion for operations, which gives GM a cushion of about $27 billion before reaching critical cash levels.

At current spending rates, GM would be at its minimum level sometime in the fourth quarter of 2010, but several industry analysts said they don’t expect the auto giant to fall that far.

“I’m not too worried about them running out of cash,” said Mark Warnsman, an analyst with Calyon Securities.

How long GM can last depends largely on the economy, said Memphis, Tenn.

“It’s just a question of how severe the downturn is and how extended it is, and obviously how successful the new models are that they’re looking to launch,” he said.

The automaker’s shares fell 84 cents, or 7.6 percent, to close at $10.23 after falling nearly 11 percent earlier in the day.

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