If there were any doubts about the severity of the economic downturn and its impact on the "real economy," they were put to rest last week by reports from U.S. automakers. General Motors Corp. warned that it may not have enough cash to keep operating through the year; Ford's situation is not as dire, but it is burning through its reserves at a comparable rate.
Their competitors should not celebrate: Their financial situation is equally precarious. A bailout is almost certain to follow, but it should come with conditions: American automakers must retool and reorganize to build cars for the 21st century. Adjustment to new economic, social and political realities is obligatory, not an option.
On Friday, GM announced a $4.2 billion operating loss in the third quarter, as its cash reserves fell from $21 billion to $16.2 billion. In a blunt warning to lawmakers, the auto giant said those reserves were dangerously close to the $11 billion to $16 billion minimum required to keep the business going. Meanwhile, Ford acknowledged its own operating loss of $2.98 billion in the third quarter and noted that cash reserves fell $7.7 billion.