After General Motors (NYSE:GM) backtracked on its commitments for the current year by saying it would turn free cash flow negative in 2005, fellow Fool contributor Stephen Simpson concluded his article wondering whether the worst was yet to come. Well, it now looks like things are indeed getting even worse.

This week, GM made two new announcements. First, the automaker plans to start cutting its salaried workforce. Second, GE (NYSE:GE) officially ended its short-term-loan program with GM, a deal that had let GM pay off suppliers early. The purpose of the program was to keep suppliers with enough working capital to maintain a steady flow of parts.

I think the cuts in salaried workforce signal two things. First, the company is posturing as it prepares for talks with the United Auto Workers union in April. Management has to begin looking for concessions from the largest part of its labor force to reduce expenses related to employee rolls and benefits. Cutting salaried workers shows that management is willing to spread the pain around. (But will management salaries and bonuses take a hit?)

Second, I think this move may signal the beginning of a reduction in the product line. GM presents its customers around the world with nine well-known brands and many other smaller ones, while Toyota (NYSE:TM) and Honda (NYSE:HMC) sport just two brands each. Although GM tries to create part commonality across its brands, it's terribly hard, since the styles and performance characteristics are very different. Thus, if GM wants to face the customer with a simpler marketing message and to increase efficiency in product development, cutting out the most unprofitable brands is a step in the right direction. The problem is that it may be too late, given that the competition continues to chip away at GM's market share, which fell from 28% in 2004 to 25% in February 2005, according to a Wall Street Journal article.

And although the GE news is not really new -- GE has already ended similar programs with Ford (NYSE:F) and Chrysler (NYSE:DCX) -- it does add additional strain to an already stressed situation. Automobile suppliers live on razor-thin margins and need their working capital up front to buy and work the raw materials into the components they provide. GMAC, the company's financing arm, is more than ready to step in and take over the program. But you have to wonder how thin the interest-rate spreads got for GE -- and its access to very low cost capital -- to make it exit the business. And would having GMAC step in really be a good use of capital?

As I was writing this piece, GM also announced it was in talks to sell a stake in GMAC's commercial mortgage business. According to The Wall Street Journal, the deal could raise up to $1 billion, which happens to be the outstanding balance that GM owes to GE. Although desperate times call for desperate measures, I think selling parts of the golden goose to provide liquidity for the clunker is not a value-enhancing proposition. My long-term track record doesn't compare with those of Mason Hawkins or Charles Brandes -- both have recently taken big stakes in GM -- but the automobile unit is a major drag on the profitable GMAC business. In an immensely competitive environment, there may not be enough time to turn things around.

Fool Contributor David Meier owns shares of GE, but he does not own any of the other companies mentioned. The Motley Fool has a disclosure policy.