GM leads way into downward spiral as auto anxiety soars

Even though gasoline prices have drifted down a few cents the past week, to a U.S. average of $4.067 Thursday, three-quarters of Americans expect gasoline to hit $5 a gallon by Labor Day, according to an Opinion Research survey for a clean-energy group affiliated with the not-for-profit Civil Society Institute.

Why stop there? Look for $200 oil and $7 gasoline in four years, says Jeff Rubin, chief economist at CIBC World Markets. He predicts those levels would collapse sales of new cars and trucks to just 11 million in 2012.

Or maybe it won't take that long. Chakib Khelil, president of the Organization of Petroleum Exporting Countries (OPEC), forecast $170 oil this summer — which would translate to $4.90 gasoline.

Thursday, oil traded at more than $140 a barrel then settled at a record $139.64, up $5.09.

No automaker unscathed

Detroit's automakers' troubles are front and center but not unique. Toyota Motor tm told a shareholders meeting in Japan on Tuesday that it no longer is confident it can meet this year's scaled-back sales target of slight growth in the USA, its biggest market.

Toyota — even though it's a pioneer with the fuel-efficient, gasoline-electric hybrid Prius — isn't insulated. It has said it is cutting production of its full-size Tundra pickups and Sequoia SUVs at its factories in Texas and Indiana.

The industry's bad news in recent days included:

•Fitch Ratings, a major credit-rating service, cut GM's and Chrysler's bond ratings one step, to B-minus, which Fitch said is six levels below investment grade, or far into junk-bond territory.

Fitch said it is reviewing Ford's rating.

The worse the rating, the higher the interest rate investors demand. That makes it expensive, or sometimes impossible, for a company to raise money.

"The market has moved too fast for them to catch up," says Mark Oline, Fitch analyst. "The liquidity (strain) could pose problems for all manufacturers."

He believes the Detroit Three are moving to align their product offerings with buyers' new appetite for fuel-efficient vehicles. "But they need (cash) and time to do that, and both are becoming increasingly short in supply," he says.

"This is a very capital-intensive industry," says Kevin Tynan, an analyst at Argus Research. "To pump out hybrids, smaller cars and alternative-fuel engines, automakers must keep investing money, and that's going to get harder as they continue burning through cash."

GM CEO Rick Wagoner tried to reassure investors Thursday that GM can hold out through this period.

"We've got a very good, solid funding base under any scenario we see — solid through the end of this year," he told reporters after an event hosted by Democratic presidential candidate Barack Obama. "We have a lot of options to fund beyond that."

•The Goldman Sachs downgrade was a rare move for a Wall Street investment firm: flat-out advising investors to sell.

They did. GM's shares tumbled 10.8%, to close at $11.43, down $1.38.

That means the big automaker's market capitalization — the value of all its shares — fell to about $6.5 billion. That makes it by far the lowest market cap of the 30 companies that make up the Dow Jones industrial average. GM's been a Dow component since 1925. The next-smallest company is Alcoa, worth $28.8 billion. Biggest is ExxonMobil at $456.6 billion.

Ford shares, pulled down by the overall gloom, closed at $5.07, down 17 cents, or 3.2%. Its market cap is $11.4 billion.

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