Page last updated at 08:49 GMT, Thursday, 3 July 2008 09:49 UK

'Bankruptcy' fear hits GM shares

Workers at a General Motors assembly plant

General Motors shares have fallen to their lowest level in more than 53 years amid concerns about the carmaker's future.

Investment bank Merrill Lynch warned that GM needs to raise funds and that bankruptcy was "not impossible".

GM has suffered from falling sales as US consumers have cut back on spending and record fuel costs have seen them switch to smaller, more efficient cars.

GM's shares hit a low of $9.96, before closing down 15% at $9.98 on Wednesday.

The share price touched its lowest level since September 1954, when the stock hit $9.92 during trading.

GM shares have fallen 60% so far this year and Merril Lynch predicted that the shares could fall even further.

"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," said analyst John Murphy.

Merrill's had previously predicted a value of $28 for GM's shares.

Sales fall

Another analyst, David Healy from Burnham Securities was less pessimistic about GM's prospects.

"My own opinion is that they're unlikely to file [for bankruptcy]," Mr 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."

General Motors suffered a big fall in US sales in June, down 18.5% compared with the same month in 2007.

The figures, however, were still better-than-expected and its sales fall was less than rival Toyota, which reported sales that were 21.4% lower.

All of the major carmakers in the US have experienced a shift in consumer demand from sports utility vehicles (SUVs) and light trucks to smaller, more fuel efficient vehicles as petrol costs have spiralled.

Last month, GM announced the closure of a number of plants in North American and Mexico that make trucks and SUVs.

Rival Chrysler said it would close a minivan factory and Ford announced a significant cut in production.


SEE ALSO
GM shares skid to 54-year nadir
01 Jul 08 |  Business
Chrysler cuts minivan production
30 Jun 08 |  Business
Ford 'to make fewer big vehicles'
20 Jun 08 |  Business
GM axes four SUV and truck plants
03 Jun 08 |  Business
Detroit's desperate struggle
13 Jan 08 |  Business

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