Running on Empty

Detroit is running out of money and it's running out of time. Throughout this dark decade for Motown, bankruptcy talk has picked up speed. Now Detroit is gripped with a full-throttle panic: a blaring black headline in today's Detroit News that reads: "Auto Fears Grow." And for good reason. Wall Street, which has driven down GM and Ford stock to nearly nothing, now says both money-losing automakers are running out of cash and might not have enough in the till to make it to 2010, when new fuel-efficient models are supposed to save the day. In fact, Standard & Poor's says GM, America's largest automaker, might not have enough money to make it through next year. "The odds are increasingly stacked against these companies getting through 2009 unscathed," says veteran auto-analyst John Casesa.

Bankruptcy is now a clear and present danger because already ailing Detroit is caught in the backdraft of the inferno engulfing Wall Street. GM stock dropped by nearly one-third Thursday, to $4.76, its lowest price since 1950, when tailfins were new and Truman was in the White House. Ford's stock plunged 22 percent to $2.08, a low-water mark not seen since the first Reagan administration (during the double-dip recession). On Friday, Ford's stock fell below two bucks, to $1.99, down 4.3 percent, while GM rebounded slightly to $4.89, up 2.7 percent. What's more, bond sellers are valuing GM's and Ford's bonds at 25 cents to 30 cents on the dollar. "You don't see bonds trading at 30 cents on the dollar unless the market thinks you're going bankrupt," says Shelly Lombard, a senior analyst at Gimme Credit Research.

Until now, Detroit's wounds were mostly self-inflicted—they stuck to their guzzlers as gas climbed to $4 and buyers turned to Toyota. But as Wall Street melted down over the last few weeks, all automakers, even Toyota, saw shoppers stay out of their showrooms as credit dried up and confidence evaporated. Auto sales fell 23.5 percent last month and now analysts are warning of a total collapse of the global car market. Even a reprieve in gas prices, which now average $3.35 a gallon, down from $4.11 in July, goes nearly unnoticed in this calamitous car market. "If you think of all the things that could align against the domestic auto industry, I can't think of a worse scenario short of war in America," says Casesa. "But maybe that would be better because we would need tanks from Detroit."

Still, it won't be a sinking stock price and cheap bonds that push Detroit into bankruptcy. Like it would be for you or me, it will be because they simply run out of cash. GM's risk is the highest, analysts say, because it's burning through a breath-taking $1 billion a month and maybe more. Sure, it has $21 billion on hand, and just raised nearly $4 billion in September by drawing on its credit lines and swapping some debt for equity. But GM needs between $11 billion and $14 billion just to keep the lights on. So it could burn down its cash pile to less than $1 billion by the end of next year, Citigroup estimates.

Ford gave itself a bit of a cushion when it literally bet the house—putting up its factories, offices and even the Ford name as collateral—to borrow $23.4 billion in 2006. Now no one is lending to Detroit, especially after Standard & Poor's warned Thursday it might push GM's and Ford's credit ratings deeper into junk territory. (Chrysler, now privately held by Cerberus Capital Management, says it has $11.7 billion in cash, but that can't be independently verified.) "Where's the cash going to come from to support these companies?" asks long-time auto analyst Maryann Keller, who rates the prospects for a Detroit bankruptcy "very high."

The automakers, naturally, insist they're not going broke. "Bankruptcy protection is not an option GM is considering," says spokeswoman Renee Rashid-Merem. Adds Ford spokesman Mark Truby: "We were fortunate to go to the markets at the right time and secure significant liquidity before the economic downturn." Chrysler spokeswoman Shawn Morgan also contends, "Bankruptcy is not a measure we are considering." And they are all frantically cutting workers and closing factories to try to conserve cash. GM is even trying to sell its corporate headquarters to raise money. (No takers so far).