GM Shares Drop to 58-Year Low, Global Risks Eyed

 
 
By Reuters -  |  Posted 2008-10-09
 
 
 

DETROIT (Reuters) - General Motors Corp shares fell to their lowest level since 1950 on Thursday as concerns mounted that an industry decline that started in the United States was spreading and a leading forecaster warned global auto demand could "collapse" in 2009.

GM shares fell as much as 22 percent to $5.42 -- driving its market capitalization to its lowest level since 1929, according to California-based Global Financial Data.

Shares of Ford Motor Co, which hit a quarter century low on Wednesday, shed as much as 13.5 percent and major auto parts makers declined as well.

GM's market cap stands at about $3.3 billion, compared with a market cap of about $4 billion in March 1929 before the stock market crash that preceded the Great Depression.

J.D. Power and Associates, a forecaster used by many in the industry to prepare their own outlooks, warned that no region was immune to financial turmoil, which has been hitting mature automotive markets harder than the emerging areas.

U.S. auto sales have fallen nearly 13 percent through the first nine months of 2008 and forecasters expect the worst year for sales since the early 1990s, and further declines in 2009 as the industry buckles under weak consumer demand.

The reports added pressure on U.S.-based GM, Ford and Chrysler, which are deep into restructuring plans and looking for ways to conserve cash until sales rebound.

Rival automakers in the U.S. market, led by Toyota Motor Corp, have deeper pockets to withstand the sales downturn, analysts say.

Toyota made an unprecedented interest-free loan offer on 11 vehicle models after posting a 32 percent drop in sales in September. The program may be extended, North American sales chief Jim Lentz told Reuters on Thursday.

Of GM, Fitch Ratings managing director Mark Oline said: "There are heightened concerns that the economic conditions and the credit crisis will take a deepening cut out of volumes."

GM has announced plans to try to increase liquidity by $15 billion through cost cuts, asset sales and new borrowing.

GM spokeswoman Renee Rashid-Merem said the automaker remains focused on its liquidity plan and declined to comment on its stock price movements.

An investment banker who declined to be identified attributed the share decline to elimination of short-selling restrictions on the shares that had put the equity value out of balance with bond and credit-default swaps values.

"It all has to rebalance now," the banker said.

GLOBAL AUTO OUTLOOK IN QUESTION

Oline said GM's main difficulty is in the deteriorating domestic U.S. market, but there is concern that a global downturn in demand could hit GM's international operations as well, particularly in Western Europe, Russia and China.

"A further cut in volumes calls into question the adequacy of their liquidity and raises concerns about trade credits throughout the supply chain," he said.

GM, the largest U.S.-based automaker, posted a $15.5 billion net loss in the second quarter and plans to increase production of more fuel-efficient cars in North America to adjust to dropping demand for pickups and SUVs.

Striking the right production balance between cars and trucks is hard. Credit Suisse believes GM and Ford may have to dial back on passenger car production in the coming months.

GM could be expected to update its liquidity plans when it posts third-quarter results. It has not said when it will report its earnings.

Analysts and auto executives cut U.S. light vehicle sales forecasts for 2008 and 2009 as high gas prices buffeted sales of large vehicles earlier in the year and the credit crunch further weighed on consumer confidence in recent weeks.

More recently, there have been signs of slowing in mature European markets and more moderate growth expectations for emerging markets where automakers had aimed resources.

GM, which posted a 1.9 percent sales decline in Europe through the first nine months of 2008, and Ford have relied, to some extent, on growth outside North America to support them as they restructure at home.

Influential industry forecasters J.D. Power and Global Insight have lowered expectations for 2008 U.S. light vehicle sales and predict a slow recovery. They also questioned sector growth in key regions overseas.

"While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse," said Jeff Schuster, J.D. Power's executive director of automotive forecasting.

In the U.S., J.D. Power expects 2009 industry sales of 13.2 million while Global Insight expects 13.4 million. U.S. auto sales were roughly 16.15 million units in 2007.

GM shares were off $1.36, or 19.7 percent, at $5.55 on the NYSE, while Ford shares were off 34 cents, or 12.8 percent, at $2.32. Ford stock had reached its lowest level in a quarter century on Wednesday, falling as low as $2.10.

(Additional reporting by Soyoung Kim in Detroit and Jui Chakravorty Das and Euan Rocha in New York; Editing by Brian Moss)