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GM shares plunge on forecast they could soon be worthless

November 11, 2008|Ken Bensinger | Bensinger is a Times staff writer.

Shares in General Motors Corp. hit a 59-year low Monday after a Wall Street firm forecast the company's stock value could drop to zero within a year.

The automaker's stock declined $1, or 23%, to finish at $3.36. That's the lowest it has closed since June 17, 1949, when it was $3.35, according to Global Financial Data.

On Friday, GM posted a $2.5-billion net loss for the third quarter, including operating losses of $4.2 billion. Through the first nine months of the year, GM has lost $21.3 billion, and in its earnings Friday, it warned that in the first two quarters of next year, "the company's estimated liquidity will fall significantly short" without outside help.

That prompted Deutsche Bank analyst Rod Lache to downgrade GM, putting a one-year price target of zero for the company's stock. "Even if GM succeeds in averting a bankruptcy," Lache wrote, "we believe that the company's future path is likely to be bankruptcy-like."

Separately, an analyst at Buckingham Research downgraded the firm's target for GM to $1 from $3. And on Friday, Standard & Poor's downgraded GM debt for the second time in six months.

Investors reacted coldly to the news that GM could soon be worthless, driving its shares down to $3.03 in scarcely half an hour of trading before they rebounded slightly. A year ago, GM was trading at $31.14, meaning that the company's stock has lost 89% of its value in that time.

GM's U.S. sales are down 20% this year and, unable to borrow money on capital markets, the company is burning through cash at an alarming $2.3-billion-per-month clip. It has cut production, employee and retiree benefits and even forced workers to take involuntary vacations to cut costs. On Monday, GM said it would lay off 1,900 factory workers in North America, in addition to the 3,600 layoffs it announced Friday.

Ford Motor Co. too is spending money far faster than it takes it in. Although the company has more cash on hand than GM and thus has a longer projected operating window, analysts worry that it could run out of cash in 2010. In the last year, Ford shares have fallen more than 75% and on Monday dropped 4.5% to $1.93.

Now GM is appealing to Washington for a financial rescue. Congress already approved $25 billion in loan guarantees to finance production of more fuel-efficient vehicles. But now the Detroit automakers, as well as legislators from Michigan, are urging Congress to approve as much as $50 billion more in loans.

Others are urging that the Big Three gain access to the Treasury Department's $700-billion Wall Street rescue plan. "The collapse of the domestic auto industry is not a viable option for our nation's economic security," said Sen. Sherrod Brown (D-Ohio) on Monday. Treasury Secretary Henry M. "Paulson must use the authority given by Congress to help secure the auto industry and save jobs."

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ken.bensinger@latimes.com

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