New York Times
DETROIT — The downturn in the American auto industry is rapidly becoming a full-blown fight for survival among Detroit's big automakers.
With the combination of high gas prices and a weak economy crippling vehicle sales, the resources of General Motors and the Ford Motor Co. are being stretched to the limit.
Both companies have undergone major revampings in recent years, yet they continue to post huge losses. And even as they burn through their cash reserves and slash more costs to stay afloat, the future looks tenuous.
In the latest sign of the deepening troubles, GM reported a stunning second-quarter loss of $15.5-billion on Friday because of a continuing fall in U.S. sales and charges for job cuts, plant closings and the falling value of trucks and sport utility vehicles.
That followed a loss of $8.7-billion reported last week by Ford. Overall sales fell by 13 percent in July.
The losses stem from a freefall in sales and a shift by consumers away from bigger vehicles that were once GM's and Ford's most-profitable products.
GM and Ford had expected economic conditions to improve in the second half of this year but now are forecasting an even more dismal sales environment.
Neither company appears in immediate danger of failure. But analysts say Detroit is in a race against time.
American automakers have decided to shift production from trucks and sport utility vehicles to smaller, more gas-efficient cars, including hybrids. But it takes time to switch equipment for production. And it is unclear whether the automakers have sufficient cash to remain solvent until their new vehicle lines are ready for customers.
Sales at GM dropped 26.1 percent in July, 14.7 percent at Ford, and 28.8 percent at Chrysler. And the three companies' combined U.S. market share hit an all-time low of about 43 percent during the month.
GM ended the quarter with $21-billion in cash reserves. But it is burning through more than $1-billion each month, which has prompted some investors to speculate about bankruptcy. One indication of a loss of faith is that the company's bonds were trading Friday at 48 cents on the dollar.