General Motors, the largest car maker in the US, which celebrated its 100th anniversary this year, said it will be bankrupt within months unless it gets government money to tide it over during the biggest economic crisis since the Great Depression of the 1930s.
The company has called off merger talks with its smaller rival Chrysler in order to concentrate on more urgent internal cost-cutting and on lobbying for a rescue from the US government.
With sales slumping across the world, GM's chief executive, Rick Wagoner, said it had burnt through $6.9bn (£4.4bn) in the three months to the end of September and had drawn on the last of its credit lines from its banks. With just $16.2bn left in the bank, and about $12bn of that needed as a cushion to fund its day-to-day operations, a day of reckoning is now within sight.
And GM didn't attempt to hide that fact. "Even if GM implements the planned operating actions that are substantially within its control, its estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business," it said.
"Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programmes, or some combination of the foregoing."
GM shares fell 9.2 per cent after being suspended pending the delayed announcement of its results yesterday.
"The third quarter was especially challenging for the auto industry," Mr Wagoner said. "Consumer spending, which represents close to 70 per cent of the US economy, fell dramatically, and the abrupt closure of credit markets created a downward spiral in vehicle sales."
Even those customers who might have felt confident enough to buy a car were denied financing, or found the cost of financing prohibitive in many cases, he added.
Mr Wagoner said those who suggest GM should be allowed to fail do not understand the knock-on consequences of bankruptcy, which would be felt well beyond Detroit, rippling through suppliers in 50 states. "The impact would be devastating for the US economy. I read the pundits, and I suspect these are the guys who said let Lehman Brothers go, too, and we see the impact that had."
GM sold 2.1 million vehicles worldwide in the third quarter, down 11 per cent on the same period last year, with western Europe sales suffering as hard as the US, and signs of new weakness in emerging markets. The company had a net loss of $2.5bn for the period, and revenue was $37.9bn, down from $43.7bn.
Mr Wagoner went to Capitol Hill on Thursday night – along with the bosses of Ford, Alan Mulally, and Chrysler, Bob Nardelli, and the United Auto Workers union leader, Ron Gettelfinger – to meet Democrat leaders and plead for federal aid. Congress has already voted them $25bn in loans to fund production of new low-emission vehicles, and the Big Three automakers are hoping for a further $25bn in bridge loans to see them through the downturn.
Although Nancy Pelosi, Speaker of the House of Representatives, and the Senate majority leader, Harry Reid, said the meeting had been constructive, they offered no explicit guarantees of help.
The question of what to do about the auto industry will be an early test of Barack Obama's presidency and his approach to economic and employment issues. The industry directly employs about 355,000 American workers, and it says that, through related industries that are dependent on auto manufacturing and sales, it supports about another 4.5 million jobs. Additionally, the three Detroit firms provide health care to around 2 million Americans, and pay pension benefits to 775,000 retirees or their survivors.
Over the past few months, the trio have considered a variety of merger combinations that would reshape the Detroit-based US car industry and allow them to slash costs. Most recently, GM has been in talks to buy Chrysler, but yesterday it said consideration of a strategic acquisition would be "set aside" to focus on "immediate liquidity challenges".
Chrysler is also haemorrhaging cash, and its chief executive rushed out a statement in response to the GM announcement. "We are significantly challenged by today's economic environment and by the automotive industry's unprecedented downturn," Mr Nardelli said. "As an independent company, we will continue to explore multiple strategic alliances or partnerships as we investigate growth opportunities around the world that would aid in our return to profitability."
Analysts had been sceptical about the benefits of putting GM and Chrysler together, saying that the disruption could be more damaging than the cost savings, even if the pair could find enough cash to write the necessary redundancy cheques.
Ford is also suffering badly, it was clear yesterday. The company, which raised cash in 2006 by mortgaging most of its assets, including the iconic blue oval logo, has enough cash to last through next year, but it reported a third-quarter loss of $129m and said it would cut 10 per cent of its white-collar staff.
"We continue to take fast and decisive action implementing ourplan and responding to the rapidly changing business environment,"said Mr Mulally.
Ford has been slashing production, particularly of its gas-guzzling pick-up trucks, which have fallen out of favour among US drivers since fuel prices rose.