Thursday, 20 November 2008

GM shares hit 70-year low as quick bailout hopes dim

DETROIT (Reuters) - Shares of General Motors Corp tumbled as much as 39 percent to hit a 70-year low on Thursday as prospects dimmed that lawmakers would reach a compromise on a proposed $25 billion bailout for U.S. automakers before Congress adjourns this week.

Shares of Ford Motor Co hit their lowest level in more than 26 years, and auto parts supplier stocks declined across the board amid concerns a failure by one of the U.S. automakers would touch off a cascade of failures in the struggling industry.

"We're still analyzing the situation, but the feeling is that without a loan package, the probability of GM or Chrysler going bankrupt in early 2009 is extremely high, at about 75 percent," said George Magliano, a forecasting director at influential auto industry tracking firm Global Insight.

Even with a government bailout, Magliano said he saw a 25 percent change of bankruptcy for either automaker amid the credit crisis that has pushed U.S. auto sales to 25-year lows.

Shares of GM were down 19 percent, or 53 cents, to $2.26 on the New York Stock Exchange, after falling earlier in the session to $1.70, their lowest level since 1938.

Shares of Ford fell 9 percent, or 10 cents to $1.16. The stock fell as low as $1.02.

Without a deal this week, any bailout would likely have to wait until the Obama administration takes over in January. By that time, GM has warned, it would run desperately short of its minimum cash needs.

Failure to craft a deal carries the risk that one or more of the U.S. automakers -- GM, Ford or Chrysler LLC -- could be forced into bankruptcy, analysts have warned.

Citigroup analyst Itay Michaeli said little progress appears to have been made to break the stalemate in the Senate over the mechanics of sourcing a $25 billion loan package. Any government actions to provide bridge loans are not expected to entirely solve GM's liquidity outlook through 2009, he added.

"We remain concerned that failure to obtain liquidity through this session may contribute to stakeholder perceptions that Detroit's liquidity options are dwindling, which in itself could increase the risk of a working capital driven liquidity crunch," Michaeli said in a research note.

Chances dimmed that a last-minute plan being crafted by Republican U.S. Senators, with White House support, to provide $25 billion to bail out U.S. automakers would receive enough backing from Democrats to pass before the end of this week.

The White House repeated Thursday it favors using $25 billion in loans already authorized and appropriated to help the industry retool plants and meet new fuel economy mandates versus a proposal by Democrats to provide automakers with another $25 billion out of the $700 billion financial rescue package.

Suppliers took a hit from the automakers' woes, with TRW Automotive Holdings Corp tumbling 21 percent to $2.11 and Lear Corp shedding 24 percent to 87 cents.

Separately, GM's long bonds fell to 14 cents on the dollar after hitting a record low of 12 cents earlier Thursday.

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