Shares of GM tumble to 58-year low on credit warning, fears of global drop in auto sales

NEW YORK (AP) -- Shares of General Motors Corp. lost nearly one-third of their value Thursday, plunging to their lowest level in more than 58 years after Standard & Poor's said the automaker's credit could fall further into junk status due to the "rapidly weakening state" of the global automotive market.


GM shares plummeted $2.15, or 31.1 percent, to close at $4.76 after falling as low as $4.65. That low marked the automaker's lowest trade since March 15, 1950, according to the Center for Research in Security Prices at the University of Chicago. At that time, the Korean War was three months away from beginning, and gasoline cost 27 cents a gallon.

Thursday marked the sixth straight day of losses for GM. The automaker's shares are down 50 percent from their close of $9.45 at the end of last month.




Brett Hoselton, an analyst who follows GM stock for KeyBanc Capital Markets, said a number of factors could be behind Thursday's drop, including the decline in banking stocks.

"Obviously, GM and Ford, they're closely tied to automotive financing," Hoselton said. "If you can't finance cars, you can't sell cars."

In addition, the three-week ban on short selling some stocks -- including GM's -- expired late Wednesday. Short selling involves borrowing a company's shares, selling them, and then buying them back when the stock falls and returning them to the lender. The practice allows investors to profit from the decline in a stock's value.

Dave Healy, analyst for Burnham Securities, said it's possible that the expiration of the short-sell ban hurt Ford and GM, though there is no way to know for sure.

"Both stocks have been favorites of the short-sellers" he said. "These are volatile stocks. They go down 10 percent when the market goes down 5 percent, and vice versa."

Still, the automobile industry has been bombarded by a spate of gloomy news. In the closing minutes of trading Thursday, Standard & Poor's Rating Services placed GM and its finance arm, GMAC, on "CreditWatch Negative," meaning a downgrade of its "B-" long-term corporate credit ratings could be forthcoming.




S&P did the same to Ford Motor Co., helping send the Dearborn, Mich., company's stock down 58 cents, or 21.8 percent, Thursday to close at $2.08. It had fallen as low as $2.03 earlier in the session, it's lowest price since June 1, 1983.

Analysts have voiced concerns that the ongoing slump in U.S. vehicle sales could last longer than they previously expected and could spread to other parts of the world, particularly Europe.

GM said Thursday that sales of its Opel and Vauxhall brands dropped more than 6 percent in Europe during the first nine months of the year -- a sign that the downturn is hitting economies globally and taking worldwide auto sales down with it.

S&P also cited capital market conditions "that will remain a serious challenge for the foreseeable future."

Healy called S&P's warning "shooting at the life boats." But given their perilous credit situation, he added the best step for the automakers is to conserve liquidity and focus on their most important model changes.




"They're limited on what they can borrow anyway," he said. "They have some liquidity. They have some contractual borrowing power from the banks, which doesn't depend on ratings. They also have some assets they can sell."

The company announced a plan in July that calls for cutting $10 billion in costs and raising another $5 billion through asset sales and borrowing through 2009.

GM had $21 billion in cash and $5 billion available through credit lines at the end of June for total liquidity of $26 billion but has been burning through cash at a pace of more than $1 billion a month.

Fitch ratings analyst Mark Oline has projected that GM could reach the minimum amount of cash required to run the business, $11 billion to $14 billion, within the next year.

Shares of GM have withered since peaking near $94 in 1999 and 2000, and they're down 89 percent from their 52-week high of $43.20 set a year ago Sunday.

Less obvious has been the precipitous drop in GM's market capitalization, which accounts for the value of all of the company's outstanding shares and represents the price at which a company could hypothetically be bought.




At Thursday's close, GM's market capitalization was $2.7 billion, down 81 percent from $14.1 billion at the start of the year. That's smaller than some of its parts suppliers, like Magna International Inc., which has a market cap of $4.1 billion. Toyota Motor Corp., GM's biggest global rival, dwarfs the Detroit automaker with a market cap of about $105 billion.

GM is also now the smallest of the 30 stocks that make up the Dow Jones industrial average, and it no longer meets one of the criteria -- $4 billion or more in market cap -- to join the Standard & Poor's 500 Index. S&P spokesman Dave Guarino declined to say if GM was in danger of being removed from the index because such announcements often move a stock.

Another possibility: With such a small market price, and assets worth far more, the company is vulnerable to a takeover, said David Cole, chairman of the Center for Automotive Research in Ann Arbor.

"Absolutely," he said when asked about the possibility. "Except for one thing: lots of debt. And most people are very reluctant. It's not just the current equity, it's the debt that you have to absorb at the same time."

At the end of June, GM reported more than $32 billion in long-term debt, and since then it has exercised $3.5 billion of a $4.5 billion line of credit.

Cole said GM's engine and transmission operations alone are probably worth $10 billion to $20 billion, far above its market capitalization.

KeyBanc's Hoselton was skeptical of the prospect of a GM takeover.




"While the market cap may be small, the breadth of the operation is overwhelming," Hoselton said. "It'd be very difficult from a strategic standpoint for virtually anybody to get around that company."

AP Auto Writers Bree Fowler in New York and Tom Krisher in Detroit contributed to this report.

GM treasurer says company will put Strasbourg, France, factory and Hummer brand up for sale

DETROIT (AP) -- General Motors Corp.'s treasurer said Wednesday that the automaker is planning to put its Strasbourg, France, manufacturing operation and its Hummer truck brand up for sale, and it may announce more asset sales later this year.

Company Treasurer Walter Borst said in a slide presentation at the Deutsche Bank Leveraged Finance Conference that the company expects to distribute marketing materials for both operations in October.

The slides posted on GM's Web site Wednesday say the assets under review are worth $2 billion to $4 billion. The presentation also says GM continues to review other asset sales and will make more announcements in the fourth quarter.

"We believe that we can monetize certain assets without impacting the strategic direction of the company," Borst said during his presentation, which was posted on GM's investor Web site.

GM and other automakers have faced liquidity problems as losses have mounted and U.S. sales have declined. GM announced a plan in July to cut $10 billion in costs and raise another $5 billion through asset sales and borrowing through the end of next year.

On Friday, the nation's largest automaker gave notice that it would draw the remaining $3.5 billion of a $4.5 billion revolving credit facility to boost its liquidity.

Borst said GM expects the global market to grow from 70.6 million in sales last year to more than 75 million in 2010, and says GM is positioned to capture that growth in emerging markets. The growth, coupled with cost cuts, factory capacity reductions and other management decisions, will set the stage for improved financial results by 2010, he said.

By 2010, GM will sell two-thirds of its vehicles outside the U.S., compared with 59 percent in 2007, he said.

He said GM plans to reduce its North American structural costs from $33.2 billion in 2007 to $26 billion to $27 billion in 2010. That figure includes savings from shifting retiree health care costs to a trust administered by the United Auto Workers, although the accounting of those savings could change, he said.

By 2010, the company also expects to reduce its hourly health care costs by more than $2 billion. The company spent $3.8 billion in 2007, he said.

Borst said GM is shoring up its liquidity and has the scale to be well positioned for an industry rebound.

"We're making changes to compete and win in what we think is an industry revolution," he said.

GM shares fell 37 cents, or 3.5 percent, to close at $10.35.