Ford, Chrysler burning through cash in auto slump
Ford Motor Co and Chrysler LLC are burning through cash quickly as they struggle to survive a sharp global downturn in demand for cars that is threatening the future of the U.S. auto industry.
But the pain is not limited to Detroit, as even Japan’s Toyota Motor Corp, now the world’s No. 1 automaker, saw its shares plunge on Friday after it warned this year’s profits would be the lowest in 13 years.
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Demand for cars is collapsing around the world as fears of possibly deep recessions in the United States and Europe prompt consumers to put off big-ticket purchases and a worldwide credit crunch makes it harder for those who are interested in buying cars to get loans.
Ford posted a sharply worse-than-expected $2.98 billion quarterly operating loss and told investors that it would look to cut salary expenses by 10 percent, a move that follows a 15 percent cut earlier this year.
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“We will continue to aggressively reduce costs and manage our cash with absolute discipline,” said Lewis Booth, Ford’s chief financial officer, in a statement.
BURNING THROUGH CASH
The company said it depleted its cash by $7.7 billion — almost 30 percent — during the quarter as it had to pay costs related to production cuts and make upfront payments to Ford Credit in an effort to spur consumers to buy automobiles.
Privately owned Chrysler, which does not report financial information, is also burning through cash and may face a breakup if it cannot close a deal with General Motors Corp or secure government funding to carry it through the financial crisis, according to people with knowledge of the situation.
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Chrysler and its owner, Cerberus Capital Management LP declined comment.
That news came the day after the heads of Ford, Chrysler and General Motors Corp — once called the Big Three due to their dominance of the industry — went to the U.S. Congress seeking $50 billion in federal aid to help them ride out the crisis. ID:nN06543827
GM is due to report quarterly results later on Friday. Analysts expect it to post a loss of about $2 billion, according to Reuters Estimates.
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Ford shares were up 8 cents, or 4 percent, to $2.06, and GM was up 19 cents, also 4 percent, to $4.99. Both trade on the New York Stock Exchange.
Ford’s 7.45 percent bonds due in 2031 were little changed on Friday at about 28.5 cents on the dollar, yielding more than 26 percent, versus 28 cents on Thursday.
SALES STALL WORLDWIDE
In Germany both BMW, the world’s largest premium carmaker, and its archrival Mercedes-Benz Cars of Daimler, posted sharp unit sales declines in October, citing continued weakness in U.S. and western European markets. Porsche is expected to report pretax profit fell 5.1 percent in the fiscal year to end-July, later on Friday.
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Toyota shares fell as much as 13 percent in reaction to Thursday’s results. ID:nT27754
Car sales around the world are stalling, and analysts said the Japanese group’s policy of breakneck expansion has left it especially exposed to an industry crunch brought on by the global financial crisis nT75550].
The credit crisis has meant many consumers are unable to access loan to fund auto purchases.
BMW suffered a comparatively mild 8.3 percent decline in group sales to 113,005 vehicles in October, while Mercedes-Benz Cars saw volumes fall 18.1 percent to 82,500 units. nL7160980
Both BMW and Mercedes have reduced profit forecasts for their automobile businesses in two consecutive quarters following a sharp drop in demand. Nissan Motor and Suzuki Motor also issued profit warnings last month.
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Source: Reuters via guardian.co.uk
(Reporting by David Bailey in Detroit, Chang-Ran Kim and Taiga Uranaka in Tokyo, Christiaan Hetzner in Frankfurt and Walden Siew in New York; Writing by Scott Malone and Victoria Bryan; Editing by Andrew Callus, Erica Billingham, Dave Zimmerman )