General Motors is in deep trouble and could be out of business by early March, writes James Doranin Detroit

IF YOU TAKE a drive around downtown Detroit, it is almost impossible to believe that such a desolate industrial wasteland was the birthplace of modern manufacturing and American prosperity.

Hundreds of factories that once employed tens of thousands of men and women in round-the- clock shifts lie not only idle but burned out, half demolished and littered with garbage and graffiti.

The headquarters of General Motors stands in stark contrast to this post-apocalyptic landscape, its glittering glass and steel skyscrapers towering high above the banks of the Detroit river.

Don't be fooled by the modern architecture, though. GM is in just as perilous a state as the rest of Motown and its days are numbered. Worse still, GM is not alone. All of America's once fabled big three automakers - GM, Ford and Chrysler - are on the brink of collapse.

The situation has become so dire in recent weeks, thanks to the credit crunch and the deepening economic slowdown.

GM shares have plunged further still on the stock market, falling to a 62-year-low of just more than $3 each as analysts, fearing the worst, hung a share price target of $0 around its neck.

The travails of America's auto industry are nothing new. Nimble Asian operators like Toyota - now the world's number one - Honda and Nissan have been eating away at GM, Ford and Chrysler sales for the best part of 20 years.

These relative newcomers are not burdened with crippling legacy costs like pensions, unionised wages and workers' health insurance schemes that add thousands of dollars to the price of every car.

More important than all of this, though, the Asian car makers pre-empted the shift in consumer taste towards smaller, more fuel efficient cars while GM, Ford and Chrysler continued to invest heavily in manufacturing supposedly higher margin light trucks and sports utility vehicles - the gas guzzling SUVs Americans used to love.

Then as the oil price soared this year, sending the price of petrol in the US from less than $2 to more than $4 in the space of a year, those few sales that were keeping the big three afloat finally dwindled to almost nothing.

To make matters worse, the credit crunch crippled auto loan businesses like GM's General Motors Acceptance Corporation, crucial parts of the carmakers' business models that relied unfortunately on fully functioning credit markets to operate.

This confluence of disasters in recent months has accelerated the big three's demise to the point where any and all desperate measures are on the table.

About a month ago, GM started talking to Chrysler about a merger or some sort of deal to save their skins. Two wrongs never made a right, though, and the thought of an even bigger dying giant with double the unwanted brands, double the idle workforce and double the plants was too frightening for anyone to consider financing a deal.

As the deal talk evaporated, Congress stepped in to offer the big three $25 billion in financial aid. The Department of Energy stumped up the cash as it was claimed the money could be used to help the struggling car makers move more swiftly to adopt green technology.

However, the very idea that such aid would be used for anything other than paying creditors and day-to day operations is laughable. A quick look at GM's books reveals how dire Detroit's prospects are. It's all about the cash, or lack of it.

GM had $16.2 billion in cash and equivalents in the third quarter of the year, about half of the sum it had in the bank a year earlier. Meanwhile the company says it needs a minimum of between $11 billion and $14 billion in cash to pay suppliers and run the company every month.

So if GM has $13.8 billion less than it had a year ago, it is burning through cash at an average rate of about $1.15 billion a month. At $16.2 billion, it has about $5.1 billion more than the minimum it says it needs. At an average burn rate of $1.15 billion a month, it would only take GM about 4.4 months to use up $5.1 billion. So if sales do not pick up dramatically - which they won't - or if the government does not step in with some serious cash, GM will have to close down by early March 2009.

Chrysler is in just as bad if not worse shape but it is no longer a public company so we are not privy to much information about its finances. Ford has a slightly bigger cash cushion and could probably survive another six to eight months longer than GM if current conditions persist.

The choice is stark: find cash, revive sales and stay in business. Or not.