US automakers struggle to move forward.
Alexander Nikolayev/AFP/Getty ImagesPlanet Money intern Alan Cordova has this dispatch about the auto industry in Detroit today:
The news out of Detroit was as bleak as the weather today. Quarterly earnings reports released by General Motors and Ford showed major losses in the third quarter ($2.5 billion for GM and $129 million for Ford.) While the losses are nothing to sneeze at, it may be more helpful to look at how much cash the companies have on hand. That's even bleaker.
In the third quarter, Ford reported that it had spent $7.7 billion in cash, with GM close behind at $6.9 billion. Both companies warned that they could run out of cash in 2009.
Why does that matter? Cash flow is usually held to be a more reliable measure of a company's health than its stock price. For example, Ford's actual net loss was only $129 million, but there's more to the story. That's because this number contains a $2 billion accounting gain the company made by shifting health care obligations. GM did not have such a gain and reported a net loss of $2.5 billion. In other words: these companies are bleeding cash and no one knows if they can survive until the economy recovers.
The "B" word was uttered today. Some say the federal government should deny the automakers' request for additional loans and let them go bankrupt. Others say they're too big to fail and the government is obligated to save them.
-- Alan Cordova
categories: News
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