General Motors shares tumbled as much as 31 per cent to a 62-year low last night after analysts downgraded the automaker, citing cash levels that may fall below the minimum needed in the first quarter of 2009.
Analysts also warned that while government aid would decrease the risk of a bankruptcy for the car maker, any assistance would come at a significant cost to existing shareholders.
GM shares closed down $1 to $3.36 on the New York Stock Exchange, after falling to $3.02, its lowest level since 1946, earlier in the day.
Barclays cut GM to "underweight" from "equalweight" and lowered its price target for the stock to $1 from $4. It said GM is expected to end 2008 with $13.3 billion in cash and fall below its minimum the $11 billion to $14 billion in cash needs during the first quarter.
That would necessitate a government bailout, which is likely to "significantly dilute GM's equity," Barclays analyst Brian Johnson said in a research note.
Deutsche Bank cut GM to "sell" from "hold" and lowered its equity value to zero from $4, saying GM may not be able to fund its operations beyond December.
GM plans to trim production in North America through the first quarter of 2009 due to declining demand, idling as many as 5,500 hourly workers, GM said last night in a filing with the US Securities and Exchange Commission.
It expects to record a charge of at least $300 million in the fourth quarter for the capacity reductions.
On Friday, GM and Ford Motor Co reported deeper-than-expected quarterly losses and said their rate of cash burn had accelerated, as an extended slump in car sales raised questions about the future of the US car industry.
GM announced additional steps to increase its liquidity on Friday, but said that even with those moves, liquidity would be at or near the minimum needed to operate its business through the rest of 2008 and would fall significantly short of the minimum needed during the first two quarters of next year.