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GM's Turning, But Still Burning Cash Jonathan Fahey, 10.25.06, 11:57 AM ET General Motors issued an upbeat third-quarter earnings report Tuesday morning -- perhaps too upbeat for a company that burned through more than $5 billion in cash during the three months through September. "Our third-quarter results again reflect significant progress in our fast-paced initiatives to turn around our business and create a company that is leaner, faster and positioned for long-term sustainable growth," said Chairman G. Richard Wagoner. Wagoner does have a lot to be happy about. The company posted record sales of $48.8 billion for the quarter, and its $115 million loss is a $1.5 billion improvement over the third quarter of 2005. Much of that improvement was driven by the company's long-struggling North American operations. The automaker has cut costs by $6 billion, and is on track to reach its $9 billion of annual cost savings by the end of 2006. GM’s market share in North America was stable at about a quarter of all auto sales. It could have done better, but it reduced low-profit sales to rental companies. General Motors (nyse: GM - news - people ) also reduced its estimate for potential costs associated with its former parts subsidiary, Delphi (nyse: DPH - news - people ). GM had warned it could be on the hook for as much as $12 billion in the Delphi bankruptcy restructuring. On Tuesday, however, GM cut that worst-case scenario to $7 billion, though the company booked a $500 million charge in the latest period, adding to $5.5 billion it took during the fourth quarter of last year. But even as the profitability at the company's auto operations improved dramatically from the corresponding period last year, the operations burned through $3.8 billion of cash, a 65% jump over last year. Chief Financial Officer Fritz Henderson blamed reduced production and the bill for a 72-hour sale that GM ran at the end of the second quarter. And that's what investors seemed to focus on: GM shares fell $1.44, or 4%, in morning trading after the announcement. "There is a large discrepancy between adjusted earnings per share and cash flow at GM," wrote MorganStanley auto analyst Jonathan Steinmetz. "Liquidity is draining." Overall, the company used up $5.1 billion of cash in the third quarter, although a dividend from GMAC and a withdrawal of assets from the company's health care fund helped soften the blow. "The level of cash burn is not at all satisfactory," acknowledged Henderson. Henderson said that of the $9 billion in cost savings GM is hoping to achieve by the end of this year, $5 billion of that would be cash savings. For next year, that means an incremental $2.5 billion incremental cash savings, he said. Another hope: GM's all-new full sized pickups will hit dealer lots early next year. Even though sales of large pickups have been slowing, these vehicles are cash machines for GM.

[Forbes News] GM's Turning, But Still Burning Cash