GM may be forced to file bankruptcy

UPDATE The chief executive of General Motors Corp. dismissed speculation that the largest U.S. automaker might soon seek bankruptcy protection, but the company's stock plunged further to depths not seen in decades. Comments in the past week about a potential bankruptcy are "not at all constructive or accurate," Rick Wagoner said Thursday. GM has $24 billion in cash and $7 billion in credit facilities, he said.

"Under any scenario we can imagine … our cash position will remain robust through this year" and the company has options for raising cash beyond that, Wagoner said at a lunch meeting of Dallas business leaders.

The bankruptcy speculation has increased and GM stock has been hammered over the past two months, losing more than half its value. Dealers are worried that the negative chatter will hurt sales, and Wagoner conceded that consumers wouldn't want to buy cars from a company in bankruptcy.

"That kind of news isn't helpful, but as long as we can get the dealers the right information … I think we can address it," he said.

GM shares continued their slide Thursday, falling 64 cents, or 6.2%, to $9.69 in New York trading. Last week, GM stock closed under $10 for the first time since 1954. Detroit Free Press

07/02/08 A Merrill Lynch analyst today downgraded General Motors Corp. stock to underperform from buy and said “bankruptcy is not impossible" if the auto industry continues to deteriorate.

Merrill Lynch analyst John Murphy lowered his outlook for GM stock to $7 per share in a note to investors and said he expects GM to post significant losses for 2008 and 2009.

“The key change in our outlook is a much lower forecast for U.S. auto sales that is driving a higher cash burn necessitating a much larger capital raise than the market is currently anticipating," Murphy wrote. “Furthermore, we believe there is potential downside in the stock below $7 and that bankruptcy is not impossible if the market continues to deteriorate and significant incremental capital is not raised."

Murphy issued his note one day after the release of June U.S. auto sales, in which sales plummeted 18.3% from the same month a year ago and GM sales fell 18.2%.

Several other analysts have recently said they expect that GM will need to raise as much as $10 billion as early as this quarter to aid the business as it burns through cash.

At $23.9 billion, GM says it has sufficient liquidity and flexibility to meet its 2008 funding requirements. In addition, the company has $7 billion of undrawn credit facilities.

Shares of GM fell 7.15%, or 84 cents, in morning trading to $10.91.

[Editor's Note: If the company files for bankruptcy the judge may force them to terminate all their auto racing programs. Hardest hit will be NASCAR, which could see 25% or more of its race grids eliminated overnight.]