DETROIT With another huge quarterly loss now in its rearview mirror, 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 hot-selling fuel-efficient models and cut output of unpopular trucks and sport utility vehicles, the company is running short on time if it keeps burning through more than $1 billion in cash every month.
GM on Friday reported a $15.5 billion second-quarter loss, 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 burn and eventually return GM to the black. But they're 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, 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'll 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 hitting 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.
Pete Hastings, senior analyst with Memphis, Tenn.-based Morgan Keegan Co., said GM's second-quarter cash burn included costs that aren't likely to recur, including restructuring expenses and the cost of a three-month strike against parts supplier American Axle and Manufacturing Holdings Inc.
Young attributed much of the second-quarter burn to reducing inventory by nearly 90,000 vehicles to fewer than 800,000. The automaker also lost money on trucks and SUVs that came back to the company from leases.
GM does not expect similar expenses in future quarters, so the cash burn should be smaller for the rest of the year, Young said.
"In that respect, the negative cash flow in the second quarter is overstated," he said.
How long GM can last depends largely on the economy, Hastings said.
"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.
GM said it will back away from leasing to minimize its exposure to value declines. That means it will increase use of cash and interest rate incentives to sell vehicles, a departure from an earlier strategy to back away from incentives.
But Henderson said because leasing is the company's most expensive incentive, the reduction could end up saving GM money.
GM wasn't the only automaker hit hard by the declining U.S. auto market. Nissan Motor Co. said Friday its net profit for the quarter dropped 42.8 percent, while BMW AG reported a 33 percent profit decline.
GM's second-quarter loss of $27.33 per share was in stark contrast to the year-ago period when it recorded a net profit of $891 million, or $1.56 per share. Revenue for the April-June period was $38.2 billion, down $8.5 billion from a year earlier.
GM posted record sales in Europe, and revenue outside North America rose by $1.7 billion to $20.8 billion, but North American revenues fell by nearly $10 billion to $19.8 billion as sales in the region fell 20 percent.
The company said its loss included $9.1 billion in one-time charges, including $3.3 billion for the buyouts of 19,000 U.S. hourly workers, most of whom left at the end of June. Young indicated that GM may offer another round of early retirement and buyouts to its hourly workers to go along with a previously announced 300,000-vehicle production cut.
Without the one-time charges, GM lost $6.3 billion, or $11.21 per share. Twelve analysts surveyed by Thomson Financial predicted a $2.62 per share loss on revenue of $44.57 billion.
The $15.5 billion loss reported Friday is less than half of GM's record $39 billion loss in the third quarter of last year, but it brings GM's net losses since 2005 to $51.1 billion.
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.