AP
GM shares fall below $10 for first time since 1954
Wednesday July 2, 6:20 pm ET
By Bree Fowler, AP Business Writer

The drop came after a Merrill Lynch analyst cut his rating for GM to "Underperform" from "Buy" and slashed his price target for the company to $7 from $28, saying that the decline in automotive sales has been more severe than anyone expected and will likely continue through next year.

"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," John Murphy wrote in a note to investors.

David Healy, an auto analyst with Burnham Securities, said the $10 mark is a purely psychological one but highlights the automaker's dramatic share price plunge since the beginning of the year, along with worries that the company may have to file for bankruptcy protection. GM shares are down about 60 percent this year.

"My own opinion is that they're unlikely to file," Healy said. "But the conditions in the auto industry are so tough for everybody right now, especially for GM, and that's why people see this as plausible."

Healy said he thinks GM has enough cash to get it through the year, along with the ability to obtain additional financing if needed and raise cash through the sale of assets such as overseas operations.

Automakers' shares have taken a beating in recent months, hurt by rising oil prices and a weak U.S. economy, along with a shift in consumer demand away from gas guzzling sport utility vehicles and pickup trucks and toward smaller, more fuel-efficient cars and crossovers.

Since July 2, 2007, GM shares have tumbled about 74 percent and the company's market capitalization has dropped to $5.65 billion from $21.5 billion.

Investors on Wednesday shrugged off better-than-expected June sales that sent GM shares surging as much as 12 percent the previous day. The automaker reported an 18.2 percent drop in U.S. vehicle sales from a year ago but retained its traditional U.S. sales lead over Toyota Motor Corp., which posted a 21.4 percent decline.

Analysts, who had expected a much steeper drop, said GM's sales were able to outpace those of most other automakers because of late-month incentives and double-digit jumps in demand for certain small and midsize cars.

Deutsche Bank's Rod Lache said that while previous incentive programs have resulted in temporary boosts to GM's market share, they have generally been followed by drops in later months.

"If history is any guide, we would expect GM's sales to experience 'payback' for the pulled forward sales in the months ahead," Lache wrote in a note to investors.

The analyst said GM's market share could drop back to the 19 percent to 20 percent range, down from its June level of 22.1 percent.

Meanwhile, Citi Investment Research analyst Itay Michaeli slashed his price target on GM shares to $14 from $21, citing liquidity fears.

"While we do not believe GM is facing an immediate cash crunch, the urgency to shore up liquidity to navigate through a difficult 2008-09 has risen significantly in recent months," Michaeli said in a note to clients. He kept a "Hold" rating.

Ford Motor Co. didn't fare as well as its crosstown rival. The Dearborn, Mich.-based automaker said its June sales plunged 27.9 percent, blaming surging gas prices for knocking its light truck sales down 35.4 percent.

Ford shares fell 35 cents, or 7.4 percent, Wednesday to close at $4.36, passing a multidecade low of $4.41 set the day before.

Despite the sales drop, Lache said Ford remains the best positioned among the U.S.-based automakers and has the required cash to ride out a drawn out industrywide slump.

"In addition, we continue to believe that Ford is the most 'fixable' of the three U.S. automakers -- it has effectively consolidated itself to two brands, and we still see considerable cost savings opportunities within the enterprise," Lache said.

June was a dismal month for the industry overall, which posted a 18.3 percent sales drop, according to Autodata Corp. Only Honda, whose lineup is tilted toward smaller and more fuel-efficient cars, managed to report a sales increase for June -- slightly over 1 percent.