Detroit: Shares of General Motors Corp tumbled 24% to 62-year lows on Monday after analysts downgraded the automaker, citing cash levels that may fall below the minimum needed in the first quarter of 2009.
Analysts including Barclays Capital to Credit Suisse also warned that while government aid would decrease the risk of a bankruptcy for the No.1 US automaker, any assistance would come at a significant cost to existing shareholders.
GM and Ford Motor Co reported far deeper-than-expected quarterly losses on Friday and said their rate of cash burn had accelerated, as an extended slump in car sales raised questions about the future of the US auto industry.
GM burned through $7 billion in cash in the third quarter and warned its cash holdings would fall short of the minimum needed to run its business without new funding or other drastic action.
Barclays cut GM to “underweight” from “equalweight” and lowered its price target for the stock to $1 from $4. It said GM is expected to end 2008 with $13.3 billion in cash and fall below its minimum the $11 billion to $14 billion in cash needs during the first quarter.
That would necessitate a government bailout, which is likely to “significantly dilute GM’s equity,” Barclays analyst Brian Johnson said in a research note.
Deutsche Bank cut GM to ”sell” from ”hold” and lowered its equity value to zero from $4, saying GM may not be able to fund its operations beyond December.
GM shares slid $1.05 to $3.32 on the New York Stock Exchange, where it fell as low as $3.02, its lowest since 1946.
GM ended September with $16.2 billion in cash, down from $21 billion at the end of the second quarter. Through the first nine months of 2008, it burned through more than $14 billion.
Barron’s, the influential investment weekly, reported on Sunday it was time to sell GM shares, adding it was wrong to have described the company as a ”buy” late last spring.
Credit Suisse said investors should avoid US automakers until vehicle sales start recovering.
“While a federal bailout may alleviate the bankruptcy risk, we think equity holders remain at risk,” Credit Suisse said in a note to clients.
It widened its fourth-quarter loss estimate for GM to $4.33 per share from $3.52, and lowered its target price to $5 from $7.
Credit Suisse also sees Ford losing 58 cents per share in the fourth quarter versus its previous estimate of a loss of 22 cents per share. It lowered its target price to $1 from $4.
Separately, an analyst at J.P. Morgan Securities said both GM and Ford are likely to receive government aid, even as he widened his loss estimates for both companies after they reported far deeper-than-expected quarterly losses.
“Ford management’s commentary on the third-quarter call as well as GM’s comments raises our optimism that some form of government help is likely given dire Big 3 liquidity,” JP Morgan’s Himanshu Patel wrote in a note to clients.
Shares of Ford were down 3.5%, or 6 cents, at $1.96.