Can General Motors and Ford survive?

No help from financing arm

GM lost a stunning $15.5 billion in the second quarter, and its cash stood at $24 billion. At that time, it was burning $1 billion a month of its reserves, but the rate of burn is thought to have increased in the recent Wall Street meltdown. The next 60 days will be critical, said GM's Henderson, who is watching to see whether the credit markets will loosen up after the U.S. government rescue package starts taking effect and European government actions kick in.

The automaker is searching the corporate equivalent of couch cushions for cash. It is, for example, trying to borrow between $250 million and $500 million from Detroit city pension funds using its corporate headquarters building as collateral. That amount of money is not enough to fund even one vehicle program.

Besides facing falling demand for cars and trucks, GM does not have the backstop of its GMAC finance arm, which for years earned huge money from auto and home loans. To raise money, GM sold a controlling stake in the finance subsidiary to Cerberus Capital Management, and the credit arm has also been hit by the subprime loan problem that has rocked Wall Street and world markets.

Hummer division on the block

GM is running out of assets to sell to raise money, and the ones it has for sale now are having a hard time finding buyers. It is trying to unload its Hummer division, as well as its commercial-vehicle business.

If it can't mortgage its building in downtown Detroit, it says it will try to sell it and lease the space back. Even at fire-sale prices, the availability of capital and credit is so tight for would-be buyers that GM isn't finding attractive offers.

In an indication of how fast GM is falling, it was only in May that the automaker bought the headquarters building for $626 million. Previously, it had leased the space it occupies on the Detroit waterfront.

To raise additional cash, GM has floated the idea of selling the public stock in its European operations, which could be spun off. But the success of that strategy is now in question, given the spread of U.S. economic problems to Europe and Asia.

The Bush administration approved a package of $25 billion in federal loans to automakers and suppliers to offset investments in building cleaner, greener vehicles. Federal officials recently said the money will likely not be available to automakers until the end of 2009. But Michigan legislators have said they will move to speed up the process to rescue their largest employers.

This article was written and reported by David Kiley from BusinessWeek's Detroit bureau.

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