They're two of the biggest companies in the world. But not even the giants can last by spending more money than they're making.
The earthquake that has shaken the North American economy experienced two terrible aftershocks Friday, after both General Motors and Ford announced massive losses totaling in the billions.
The ripple effect means more job losses across the continent, leaving workers in Oshawa and Oakville fearing the worst.
GM took it the hardest of the two Goliaths. Its third quarter loss totals a staggering $2.5 billion, as car sales get put into park worldwide over deteriorating financial conditions and soaring gas prices. The company was forced to burn through $6.9 billion in cash reserves to keep afloat, money it will never get back.
"Volatility in the world's financial markets, tightening of consumer and business credit and historically-low consumer confidence has created a very challenging environment," assesses Rick Wagoner, GM chairman and chief executive. "Given the current lack of credit availability we must take further difficult 'self-help' actions."
In an admission that would have seemed almost unthinkable even a few years ago, the world's biggest company admits it could actually run out of money next year if the hemorrhaging continues.
The news from Ford was equally staggering. The name synonymous with Detroit wound up $129 million in the hole in the third quarter, burning through $7.7 billion in lost cash.
That's on top of the $8.7 billion it lost in the second quarter - its worst three-month performance ever. Sales dropped 22 per cent in the quarter - down to $32.1 billion.
"I think it goes without saying, forecasting the future at the moment is extremely difficult," admits chief financial officer Lewis Booth. "Trying to find out just exactly what is happening with the consumer is really tough."
What's next? The inevitable job losses.
GM has confirmed it will be forced to cut more of its white collar workforce in the U.S. and Canada to compensate for the red ink. Cost reductions targets now sit at 30 per cent, up from the 20 per cent announced in July.
"The reductions will be achieved with further contract and salaried headcount reductions by the recent over-achievement of the salaried window retirement goal, mutual separation programs, and if necessary, involuntary separations," the company warns.
GM wasn't specific about the volume of cuts coming in the wake of the devastating report, but there were some immediate, albeit temporary layoffs, confirmed on Friday - about 500 people will be sidelined at the company's Oshawa plant.
"Today's news is devastating to our members in Oshawa," admits CAW boss Ken Lewenza. "If there is a silver lining it's the fact that these are temporary and not permanent layoffs." But he knows that could change.
Ford admits it will have to chop another 10 per cent of its workforce as a result of the bleeding, which doesn't look to be staunched anytime soon.
GM was looking for a possible merger with Chrysler as an answer to its ongoing woes but has now suspended those talks as it looks to save cash.
All of the Big 3 are demanding billions in no-strings-attached loans from both the Canadian and American governments in order to stay afloat.
If not - and if things don't suddenly improve - there are fears at least one of them could be out of business for good within a year.
That would be the ultimate aftershock, taking potentially hundreds of thousands of jobs not only from the lost company but the ripple effect for parts suppliers, who would have to cut back their own crews to compensate for the drop in business.
Workers fear for the future
Photo by Scott Olson/Getty Images
GM Cost Cutting Plans
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Slowing down assembly line rates at North American factories beginning next year.
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Delaying several new vehicle programs, but it would spend more on its Chevrolet Volt electric car and other fuel-efficiency vehicles.
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Targeting $10 billion in cash improvements through 2009
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Selling between $2 billion and $4 billion of assets, including disposal of its Hummer, ACDelco and Strasbourg operations
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Looking for new targets to save another $5 billion by the end of next year, bu cutting capital spending, reducing sales promotions, and further cutting production in the first quarter.
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Salaried employees will not get incentive pay next year for their work in 2008.
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Seeking other cost reductions of $1.5 billion at North American operations and working capital improvements of $500 million.
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Increasing the cost reduction target for salaried workers to 30 per cent from 20 per cent as announced on July 15.