Despite massive restructuring efforts, General Motors (GM) warned Friday its liquidity next year will fall “significantly short” of what’s needed to operate its business and that it needs more help from the government.  GM also hinted it’s no longer pursuing merger talks with Detroit neighbor Chrysler.

“GM’s estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business,” said GM in a press release. “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.”  GM said its liquidity next year could also be helped by “substantial” proceeds from asset sales, gaining access to capital markets and by government aid, the company said.

During the third quarter, GM, the largest U.S. auto maker, burned through $6.9 billion in cash. The warning on the part of GM prompted credit rating agency Standard & Poor’s cut its credit rating on GM to CCC+ from B- and give it a negative outlook Friday. The downgrade follows on S&P’s move earlier Friday to cut its credit ratings on GMAC and GMAC’s Residential Capital mortgage unit.

“The downgrade reflects expanding cash losses in GM's operations caused by sharply lower U.S. and now European light-vehicle sales and the recent dramatic shift in demand away from large pickup trucks and SUVs in the U.S,” said S&P about its cut in GM’s rating. “We expect cash outflows to quickly reduce the company's liquidity during the next few quarters, perhaps to levels that would force GM to consider a financial restructuring, even if it does not file for bankruptcy.”

GM, Ford (F) and Chrysler have been struggling for months as high oil prices, tight credit markets and slack sales have weighed on their fortunes.  The dismal state of the auto industry prompted GM and Chrysler to enter into talks about a merger although neither company has confirmed it. GM has said an acquisition would strengthen its financial position, but an apparent deal between GM and Chrysler received widespread criticism from labor unions because of the layoffs that would ensue as a result.

In the press release GM said that while a “strategic acquisition” would generate “significant” cost reductions and strengthen GM’s financial position in the medium and long term, it’s more important to focus on its current liquidity challenges and a deal in the near term is no longer a priority. Chrysler said Friday it’s continuing to explore multiple strategic alliances and partnerships.   

GM’s moves come as the company’s third quarter net loss narrowed to $2.54 billion or $4.45 a share, compared to $38.96 billion, or $68.85 a share in the year earlier third quarter. On adjusted basis, GM’s loss widened to $7.35 a share from $2.86 a share. Sales fell 13% to $37.94 billion. Analysts, according to Thomson Reuters, had expected GM to weigh in with a loss, excluding items, of $3.70 a share and revenue of $39.41 billion.  Ford posted a wider pretax loss of $2.7 billion and burned through $7.7 billion in cash during the quarter. Still Ford said it’s comfortable with its liquidity position.

In addition to implementing costs savings actions and asset sales, GM said Friday it needs more help from the government for itself and the entire U.S. auto industry. GM confirmed reports it has had talks with various government agencies and congressional leaders about the importance the domestic auto industry plays in the economy and the need for immediate government funding.

“Many in the government have acknowledged the important role of the industry in the national economy and the discussions are ongoing,” said GM in its press release. “At this point their outcome cannot be predicated with certainty.” 

GM, Ford and Chrysler have already received approval for $25 billion in low interest loans from the government.