"While the acquisition could potentially have provided significant benefits, the company has concluded that it is more important at the present time to focus on its immediate liquidity challenges and, accordingly, considerations of such a transaction as a near-term priority have been set aside," the company said in a statement.
Privately held Chrysler said it won't comment on GM's statement, but added it remains focused on returning to profitability.
GM said its cash burn for the quarter accelerated to $6.9 billion, and government aid will be "essential" because of the slow economy and credit crisis.
If companies run out of cash, generally they can sell assets, cut costs or file for bankruptcy protection to keep creditors at bay while they develop a financial reorganization plan.
But in a conference call with reporters and analysts, GM Chairman and CEO Rick Wagoner said the company will "take every action we possibly can" to avoid bankruptcy.
"We're convinced that the consequences of bankruptcy would be dire," he said, adding that the company will use every source of funding it can.
"We need to find a way to get through this, and that's really our focus."
The company also said it will indefinitely lay off about 3,600 workers beginning early next year as it slows production at 10 of its assembly plants.
The news came hours after Ford Motor Co. said it lost $129 million for its third quarter and will cut about 2,260 more white-collar workers in North America as the industry tries to weather the worst economic downturn in decades. As U.S. and global economies have rapidly deteriorated, auto sales have nearly shut down.
Wagoner had said in a statement earlier that the third quarter "was especially challenging for the auto industry."
"Consumer spending, which represents close to 70 percent of the U.S. economy, fell dramatically, and the abrupt closure of credit markets created a downward spiral in vehicle sales," he said.
The nation's biggest domestic automaker reported a net loss of $4.45 per share during the quarter, compared with a record-setting loss of $39 billion, or $68.85 per share, a year ago. Its adjusted loss was $4.2 billion, or $7.35 a share, with an adjusted loss of $2.8 billion for its automotive operations.
Revenue fell to $37.9 billion from $43.7 billion, due largely to credit freezing across the globe.
The loss exceeded Wall Street estimates. Analysts surveyed by Thomson Reuters predicted a loss of $3.70 per share on sales of $39.4 billion.
The struggling company announced it would improve liquidity by $5 billion by the end of next year by cutting capital spending, reducing sales promotions, and further cutting production in the first quarter.
The company also suspended its matching contribution for employee 401K plans, and suspended tuition reimbursement. In addition, salaried employees will not get incentive pay next year for their work in 2008, GM said.
It said it will slow down assembly line rates at North American factories beginning next year, but it gave no details. It also said several vehicle new vehicle programs would be delayed, but it would spend more on its Chevrolet Volt electric car and other fuel-efficiency programs.
But the cuts and delays may not be enough.
"Even if GM implements the planned operating actions that are substantially within its control, GM's estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business," the company said in a news 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" or it receives government funding, the news release said.
Ray Young, chief financial officer, said GM expects significantly lower cash burn in the fourth quarter. GM said it had $16.2 billion in cash, marketable securities and readily available assets at the end of September, down $4.8 billion from the $21 billion it reported on June 30.
GM has said in the past it needs a minimum of $11 billion to $14 billion to run the company.
GM officials said in the conference call that it intended to cut a total of 7,000 white-collar jobs this year, up from 5,100 announced in July. GM had 32,000 U.S. salaried workers at the end of last year, down from 44,000 in 2000.
The automaker had a net gain of $1.7 billion in the quarter, including a $4.9 billion gain due to the shift in its retiree health care expenses to a union-administered trust starting in 2010.
But the health care gain was offset by a $1.7 billion noncash charge due to elimination of salaried retiree health care benefits, $652 million for Delphi's bankruptcy proceedings, $251 million for write-downs at its financial arm, GMAC LLC, and $641 million in restructuring related and other charges.
GM owns 49 percent of the money-losing GMAC, with the remainder owned by Cerberus Capital Management LP.
Cerberus also owns a majority stake in Chrysler, and has reportedly been in talks about selling the Chrysler auto operations to GM possibly in exchange for a part of GM's stake in the GMAC business.
In an e-mailed statement, Chrysler LLC Chairman and Chief Executive Bob Nardelli said the company doesn't comment on its private business meetings, but will continue to explore potential strategic alliances and partnerships.
Cerberus said in its own statement, "As a matter of policy, we do not comment on market rumor or speculation. We are consistently evaluating potential alliances and investment opportunities." GM shares fell 65 cents, or 13.5 percent, to $4.15 in afternoon trading.
Ford said in its earnings report earlier in the day that it burned through $7.7 billion in cash in the third quarter.
Its global automotive operations had a pretax loss of $2.9 billion for the quarter, compared with a pretax loss of $362 million a year earlier.
Sales fell 22 percent to $32.1 billion from $41.1 billion due to lower volume and the sale of Jaguar and Land Rover.
"While Ford has been dramatically affected by the difficult business environment, we remain absolutely convinced that we have the right plan and are taking the right actions to weather this difficult period and emerge as a lean, globally integrated company poised for long-term profitable growth," Alan Mulally, president and chief executive, told industry analysts during a teleconference.
Ford shares fell 9 cents to $1.89 in midday trading.