GM shares hit 58-year low

GM is now vulnerable to a takeover, an analyst says.

STAFF/WIRE REPORT

NEW YORK — Shares of General Motors Corp. lost nearly one-third of their value Thursday, plunging to their lowest level since July 1950.

GM shares plummeted $2.15, or 31 percent, to close at $4.76 after falling as low as $4.65.

GM’s drop helped push the Dow Jones industrial average down nearly 700 points to its lowest level in five years.

GM’s price drop seemed particularly harsh to David Healy, an analyst with Burnham Securities. Concern over credit ratings and worries about GM’s European sales didn’t seem to be enough of a reason for investors to shun the company’s stock to that degree, he said.

“It remains a puzzle to me,” he said.

Standard & Poor’s said the automaker’s credit could fall further into junk status due to the “rapidly weakening state” of the global automotive market.

Healy said GM appears to have enough cash, borrowing capacity and salable assets to weather its financial crisis without resorting to bankruptcy, he said.

Fitch ratings analyst Mark Oline has projected that GM could reach the minimum amount of cash required to run the business, $11 billion to $14 billion, within the next year.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, said GM is vulnerable to a takeover because its assets are worth more than the market price of its outstanding stock.

“Absolutely,” he said when asked about the possibility. “Except for one thing: lots of debt. And most people are very reluctant. It’s not just the current equity, it’s the debt that you have to absorb at the same time.”

Healy said that it’s possible that the expiration of the short-sell ban hurt Ford and GM, though there is no way to know for sure. Short-selling, or betting the stock prices will fall, had been temporarily banned through Wednesday.

“Both stocks have been favorites of the short-sellers” he said. “These are volatile stocks. They go down 10 percent when the market goes down 5 percent, and vice versa.”

Brett Hoselton, an analyst who follows GM stock for KeyBanc Capital Markets, said a number of factors could be behind Thursday’s drop, including the decline in banking stocks.

“Obviously, GM and Ford, they’re closely tied to automotive financing,” Hoselton said. “If you can’t finance cars, you can’t sell cars.”

GM’s low price Thursday marked the automaker’s lowest trade since March 15, 1950, according to the Center for Research in Security Prices at the University of Chicago. At that time, the Korean War was three months away from beginning, and gasoline cost 27 cents a gallon.

Thursday marked the sixth straight day of losses for GM. The automaker’s shares are down 50 percent from their close of $9.45 at the end of last month.

Still, the automobile industry has been bombarded by a spate of gloomy news. In the closing minutes of trading Thursday, Standard & Poor’s Rating Services placed GM and its finance arm, GMAC, on “CreditWatch Negative,” meaning a downgrade of its “B-” long-term corporate credit ratings could be forthcoming.

S&P did the same to Ford Motor Co., helping send the Dearborn, Mich., company’s stock down 58 cents, or 21.8 percent, Thursday to close at $2.08. It had fallen as low as $2.03 earlier in the session, it’s lowest price since June 1, 1983.

Analysts have voiced concerns that the ongoing slump in U.S. vehicle sales could last longer than they previously expected and could spread to other parts of the world, particularly Europe.

S&P also cited capital market conditions “that will remain a serious challenge for the foreseeable future.”

Shares of GM have withered since peaking near $94 in 1999 and 2000, and they’re down 89 percent from their 52-week high of $43.20 set a year ago Sunday.

GM also is now the smallest of the 30 stocks that make up the Dow Jones industrial average, and it no longer meets one of the criteria — $4 billion or more in market cap — to remain in the Standard & Poor’s 500 Index. S&P spokesman Dave Guarino declined to say if GM was in danger of being removed from the index because such announcements often move a stock.