GM shares plunge 23% after analyst sets target price at zero

General Motors' gm shares plunged 23% Monday after a key Wall Street analyst slashed his target price for the struggling automaker's shares to zero, saying the company could run short of cash by December and that even with government aid, shareholders are likely to lose their investment.

"Even if GM is able to secure immediate U.S. government support, we believe that GM's predicament has the potential to set in motion a sequence of events that would be bankruptcy-like," said Deutsche Bank analyst Rod Lache, who lowered his rating on GM shares to "sell" from "hold."

Lache said GM's U.S. cash could fall to $5 billion by December, which would not be enough to pay the supplier bills for U.S. operations that come due in January. He said that government aid would likely crowd out unsecured investors such as shareholders.

GM spokeswoman Renee Rashid-Merem declined to comment on Lache's note but said GM is focused on a number of cost-cutting initiatives it outlined on Friday when it reported third-quarter earnings.

"We've implemented a lot of activities that are more than $20 billion in savings by the end of 2009, and we are going to remain focused on those initiatives internally, and at the same time we have approached the government for potential funding."

Gm shares fell $1.00 to close at $3.36, after earlier falling to $3.02, its lowest level since 1946.

GM executives said Friday that securing government aid was their top priority. The automaker, its Detroit competitors and the UAW have asked Congress to help provide a $25 billion loan to automakers and another $25 billion loan to the UAW's trust fund for retiree health care.

Congressional Democrats called on the Bush administration this weekend to use a portion of the $700 billion financial industry bailout to aid automakers. The administration has said the only tool it has to help the industry is the $25 billion in loans for fuel-efficient vehicles, which will be dispersed over several months.

The Treasury Department hasn't officially responded to the letter from House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, but White House spokeswoman Dana Perino said Monday that the administration did not see how automakers could fit under the program.

Saving financial markets "is what Congress had in mind when it passed that rescue package," Perino said. "There was not discussion of specific help to auto companies during that debate, and so Congress' intent was to help financial institutions."

Members of Congress did bring up aid for auto finance companies by boosting the market for car loans during the debate on the bailout, but did not address broader help for automakers.

Perino added that the administration would listen to Congress if it decided to provide more help to automakers and suppliers. Pelosi has yet to say whether the House will reconvene next week.

Two other respected Wall Street analysts predicted GM could survive until the first quarter of next year, but expressed concern Monday about the impact that government assistance would have on the value of GM's stock.

"Of the four broad options for government assistance for GM, we believe that political pressure to protect taxpayers may lead to a solution similar to the 1979 Chrysler bailout, which was accompanied by concessions from debt holders, labor, suppliers and management," said Barclays Capital equity analyst Brian Johnson in a research note. "In any scenario, we see little value for current equity."

Credit Suisse equity analyst Christopher Ceraso advised investors that there is no reason to own GM stock until global vehicles sales increase, which may not occur until late next year.

"The bottom line is that at least for the next several quarters, we don't expect the company to shrink its costs fast enough to stem the cash burn," Ceraso said. "Neither does GM — hence the plea for government money."

GM spokeswoman Renee Rashid-Merem declined to comment on Lache's note but said GM is focused on a number of cost cutting initiatives it outlined on Friday when it reported third-quarter earnings.

"We've implemented a lot of activities that are more than $20 billion in savings by the end of 2009, and we are going to remain focused on those initiatives internally, and at the same time we have approached the government for potential funding."

GM executives said Friday that securing government aid is their top priority. The automaker, its Detroit competitors and the UAW have asked Congress to help provide a $25 billion loan to automakers and another $25 billion loan to the UAW's trust fund for retiree health care.

Congressional Democrats called on the Bush administration this weekend to use a portion of the $700 billion financial industry bailout administered by the Treasury Department to aid automakers. The administration has said the only tool it has to help the industry is the $25 billion in loans for fuel-efficient vehicles, which will be dispersed over several months.

The Treasury Department hasn't officially responded to the letter from House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, but White House spokeswoman Dana Perino said Monday that the administration did not see how automakers could fit under the program.

Saving financial markets "is what Congress had in mind when it passed that rescue package," Perino said. "There was not discussion of specific help to auto companies during that debate, and so Congress' intent was to help financial institutions."

Members of Congress did bring up aid for auto finance companies by boosting the market for car loans during the debate on the bailout, but did not address broader help for automakers.

Perino added that the administration would listen to Congress if it decided to provide more help to automakers and suppliers. Pelosi has yet to say whether the House will reconvene next week.

Two other respected Wall Street predicted GM could survive until the first quarter of next year, but expressed concern Monday about the impact that government assistance would have on the value of GM's stock.

"Of the four broad options for government assistance for GM, we believe that political pressure to protect taxpayers may lead to a solution similar to the 1979 Chrysler bailout, which was accompanied by concessions from debt holders, labor, suppliers and management," said Barclays Capital equity analyst Brian Johnson in a research note. "In any scenario, we see little value for current equity."

Credit Suisse equity analyst Christopher Ceraso advised investors that there is no reason to own GM stock until global vehicles sales increase, which may not occur until late next year.

"The bottom line is that at least for the next several quarters, we don't expect the company to shrink its costs fast enough to stem the cash burn," Ceraso said. "Neither does GM—hence the plea for government money."

Comments