More fuel for the fire from Bloomberg
GM Bankruptcy `Not Impossible,' Merrill Analyst Says (Update3)
By Greg Bensinger and Jeff Green
July 2 (Bloomberg) -- General Motors Corp., battered by the slowest U.S. sales market in 15 years, faces the possibility of bankruptcy and may need to raise as much as $15 billion, a Merrill Lynch & Co. analyst said.
The ``dramatic drop-off'' in sales probably will continue through 2009, forcing GM to find additional funding, analyst John Murphy, who cut the Detroit-based automaker's shares to ``underperform'' from ``buy,'' said in a report. ``Bankruptcy is not impossible if the market continues to deteriorate.''
GM fell $1.23, or 10 percent, to $10.52 at 11:54 a.m. in New York Stock Exchange composite trading. The shares have declined 72 percent in the past 12 months, the biggest drop among the 30 companies in the Dow Jones Industrial Average.
Murphy's assessment follows GM's report yesterday that its June U.S. auto sales fell 18 percent, as rising gasoline prices damped demand for pickups and sport-utility vehicles. Merrill's figure on how much the largest U.S. automaker may have to raise is more than estimates last month of as much as $8 billion by Bank of America Corp. and $10 billion by JPMorgan Chase & Co.
Merrill also cut its price estimate for the shares by 75 percent to $7.
The automaker has ``sufficient liquidity and financial flexibility to meet its 2008 funding requirements,'' said GM spokeswoman Renee Rashid-Merem in an e-mail. The company may consider ``reducing structural costs, selling non-core assets, and retiming or eliminating other capital spending,'' she said.
GM had $24 billion in cash and marketable securities and access to about $7 billion in undrawn U.S. loans on March 31, at least $6 billion more than it initially figured it would need for a U.S. decline, Chief Financial Officer Ray Young said on May 13.
Trimming Production
The automaker said yesterday that it plans to cut North American production this quarter 12 percent to about 900,000 vehicles. Automakers book sales when a car or truck is built, so lost output reduces revenue. Strikes at GM's largest axle supplier and two of its own plants trimmed production in the region 27 percent last quarter.
The annualized U.S. sales rate for June fell to 13.6 million cars and light trucks, the lowest since 1993. Automakers, including GM, said dealers didn't have enough fuel-efficient cars on their lots to meet customer demand. GM is adding 50,000 cars and so-called crossover sport-utility vehicles, which combine car and light-truck features, to its 2008 production plans.
The average U.S. price of gasoline rose to a record $4.09 a gallon this week, according to motorist group AAA.
GM's June decline was narrower than the 28 percent for Ford Motor Co. and 21 percent for Toyota Motor Corp. Even with Toyota's drop, Asia-based automakers outsold GM, Ford and Chrysler LLC for the second straight month. The U.S. automakers rely more on pickups, SUVs and vans.
Sales Estimate Lowered
Murphy lowered his estimates for this year's U.S. industry sales to 14.3 million vehicles from 14.8 million, and to 14 million from 15.3 million vehicles for 2009. The annual industry average this decade has been 16.8 million.
GM also said today that its sales growth in China slowed in the first half as competition intensified with Toyota and Volkswagen AG. The U.S. company boosted sales in China 14 percent in the period, compared with 19 percent a year earlier, Joseph Liu, vice president for GM China, said in an interview. GM is the biggest overseas automaker in that country.
The company's 8.375 percent note due in July 2033 fell 81 cents to 58.19 cents on the dollar, raising the yield to 14.7 percent, according to Trace, the bond-price reporting service of the Financial Industry Regulatory Authority.
To contact the reporters on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net; Jeff Green in Southfield, Michigan at
jgreen16@bloomberg.netLast Updated: July 2, 2008 11:56 EDT
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