GM shares hit 60-year low
Mortgage unit may not surviveStaff, wire report
DETROIT - Bad news kept piling up for General Motors Corp. Monday as its shares plunged to their lowest point in 60-plus years, and the company said in a government filing that the mortgage unit of its finance arm may not survive.
The company also said Delphi Corp., its former parts operation that was spun off as a separate company in 1999, may not be able to emerge from Chapter 11 bankruptcy protection.
Delphi spokesman Lindsey Williams said the warning isn't new but was placed in GM's government filing six or eight months as one of the risk factors it faces.
Delphi, which employs about 750 hourly workers at its Warren area operations, has been operating in bankruptcy protection since October 2005.
GM shares dropped $1, or 23 percent, to close at $3.36.
They earlier plummeted as low as $3.02 on increasing worries about accelerating cash burn and mounting losses. That marked the automaker's lowest share price since Dec. 2, 1946, when it hit $3, according to the Center for Research in Security Prices at the University of Chicago. The price is adjusted for splits and other changes.
Before the markets opened Monday, Brian A. Johnson of Barclays Capital cut his rating on GM to ''Underweight'' from ''Equal Weight'' and slashed his price target for the Detroit-based automaker to $1 from $4.
Johnson said that without additional funding, GM's gross cash likely will fall below minimum levels in the first quarter of next year.
The analyst also said that while additional government assistance likely will decrease the probability of a bankruptcy protection filing at the nation's largest automaker, it also would likely significantly dilute its equity.
Separately, JPMorgan's Himanshu Patel said he expects GM to receive some form of federal aid, but advised investors to be cautious given the uncertainty. He added that he expects the automaker to end 2008 with $12.6 billion in cash on hand, just above midrange minimum cash and excluding government loans.
Both analysts said they expect the automaker's per-share losses for this year and next to be significantly more than what was expected. Both slashed their estimates.
Early in the afternoon, GM filed its quarterly report with the U.S. Securities and Exchange Commission that contained more bad news.
The company said that the troubled mortgage industry and frozen credit markets have raised doubts that the mortgage business of its GMAC LLC financial arm can survive.
The filing says that the value of Residential Capital's mortgage loans have deteriorated due to weak housing prices, delinquencies and defaults. It is also having trouble raising capital.
GM owns 49 percent of GMAC LLC, with the rest owned by Cerberus Capital Management LP.
Market developments have so harmed Residential Capital, called ResCap, that there is ''substantial doubt about ResCap's ability to continue as a going concern,'' GM said in the filing.
The automaker also revealed that ResCap's deteriorating finances forced ResCap to shore up its standing with mortgage finance giant Fannie Mae, the largest U.S. buyer and backer of home loans.
ResCap said it posted an additional $200 million in collateral with Fannie Mae and sold off the rights to collect payments on $12.7 billion in loans, or 9 percent of the total amount it collects for Fannie Mae. Had ResCap not acted, Fannie Mae could have severely curtained its loan purchases from ResCap.
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anniemae
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11-11-08 11:24 PM
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I agree about the CEO pay checks & bonuses,but the union wouldn't make concessions at contract time. The company took from the salaried personnel, but not the union. Check out the union officials now & see their paychecks. Where does this "distribution of wealth" come in?
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autoworker
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11-11-08 2:42 PM
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ur right cortlandmom..wouldnt they save more money cutting 40% off of someone making millions per year then 40% off of the bottom people making the least money?
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cortlandmom
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11-11-08 11:54 AM
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It's not the union wages and benefits they need to cut. It is the big salaries of the CEO and such along with you millions in bonuses. After filing bankruptcy they went to the judge and asked permission for their bonuses while the union had major pay deductions. That is where they need to start; at the top.
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ohiojohn
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11-11-08 11:19 AM
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GM is jumping on the bailout wagon to wee what kind of money they can get ut of the government. That is the only reason for them to dry bankruptcy, Had Delphi thought of it they mihgt have gone that route too. You'd think they would have learned from the Chrysler Bailout back in the late seventies. I will never buy another GM product after all the cra; they pulled with Delphi. I'm glad to have gotten away from all that BS
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Trancemage
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11-11-08 7:33 AM
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Sure Grump, Bankruptcy has worked so well for Delphi hasn't it? Circuit City has even jumped on board and they don't even have a union. What you don't seem to understand is that if these companies go under completely there is going to be a domino effect that shuts down even more areas. Don’t you see what the job loses in this area have done already? Now take the rest of us that work at those companies out of the economy, and it will just get worse. We tax payers as you like to say, will pay for it one way or another. Personally, I would rather pay for it while I am working and not in the unemployment line or greating people at Chinamart.
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OldManGrump2
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11-11-08 7:10 AM
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Bankruptcy is the only answer to GM's problem. It would allow them to re-negotiate the UAW contract by cutting the wages & benefits even more. Why should we taxpayers support their business failures and excessive union contracts?
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