• by Karl Greenberg , November 7, 2008

As if the news couldn't get worse. On Friday, the Labor Department said unemployment has spiked to 6.5%, and General Motors said it is scraping the bottom of its coffers. The company, whose share price was at $4.29 by midday, said that it lost $2.5 billion in the third quarter. It is also taking a merger with Chrysler off the table for now.

"While it's fair to say that this could have provided benefits, we have concluded that at this time it's important to put all our efforts on our immediate liquidity challenge," said CEO Rick Wagoner during an analyst conference call to discuss third-quarter earnings.

The company says it will raise $5 billion by cutting spending, sales promotions and production starting in the first quarter. The company said that even with these plans, it will be near the very minimum it needs to operate.

"Our balance sheets are weakened by restructuring," Wagoner said. He added that the effect of the credit crisis on the real economy includes carmakers unable to get credit to complete restructuring and fund new technology. "Consumer confidence is at an all-time low; suppliers are losing business and can't get credit." Now, he added, it is also harder for dealers and retail automotive customers to do so.

Wagoner said that despite the $5 billion in savings, including cuts in capital expenditures and workforce, "important projects will remain on track, with a heavy product launch schedule next year, in spite of cuts."

GM President and COO Fritz Henderson said GM's historic sales actually peaked in January this year, which just makes that drop in sales that much more dramatic. "What we have seen is the depressed level of sales accelerating through the year," he said, adding that GM does not expect marked improvement next year.

"We expect volumes to be below trend for several years in the U.S. He said that even though the company predicts that automakers will sell as many as 14 million vehicles in the U.S. next year, GM's operating plans are more conservative--built around U.S. sales of 11.7 million next year, "with modest recovery in 2010."

Despite further cuts, says Henderson, GM will stick with its vehicle launch schedule. In North America this quarter, GM launches the Hummer H3T truck and Chevy Traverse crossover. Next year, the company will introduce the Cadillac SRX, Chevy Equinox and GMC Terrain crossovers; and Chevy Camaro, Cadillac CTS Wagon and Buick Lacrosse cars. In 2010, GM will launch the Saab 9-4x crossover and 9-5 sedan and wagon, Chevy Cruze compact, Cadillac CTS coupe and Chevrolet Volt gas/electric car.

In Dearborn, Mich., automaker Ford--which posted its worst quarter ever during the first three months of the year--has also had a bad quarter. The company--which posted a net loss of $129 million for the quarter, with pre-tax loss of $2.7 billion and $2.6 billion in North America--now reports having about $18.9 billion in cash, compared to over $26 billion in the second quarter. Ford North America reported a pre-tax loss of $2.6 billion, compared with a loss of $1 billion a year ago.

The company's CEO, Alan Mulally, said Ford will cut 10% of North American salaried personnel, amounting to 2,260 employees; cut capital spending; and consider selling more assets.

The company says it is on track to reach $5 billion in cost reductions in North America by the end of this year, and says it has automotive gross cash, which includes cash equivalents, marketable securities and loans worth $18.9 billion.