GM shares at 33-year low on downgrade
NEW YORK (CNNMoney.com) -- General Motors stock price fell 10% Thursday,
to the lowest level in more than 33 years, as analysts reacted to a
Goldman Sachs downgrade and continued concerns about the automaker's
By early afternoon GM (GM, Fortune 500) shares had fallen $1.26, or 9.8%
to $11.55, after hitting an intraday low of $11.21.
The last time GM shares traded at $11.21 was Dec. 30, 1974, according to
the Center for Research in Security Prices at the Chicago Graduate
School of Business. The price has been adjusted for splits and other
price- affecting distributions.
The selloff followed a report issued Thursday by Goldman Sachs
downgrading the automaker to "Sell" from "Neutral." Analysts lowered
their six-month price target for GM to $11 from $19.
"We expect GM shares to continue to under perform as market fundamentals
deteriorate which exacerbates liquidity concerns," the report states.
"We think GM's automotive cash flow burn this year and next is likely to
lead it to look to raise capital, which we believe could lead to
significant shareholder dilution and/or a cut to the company's dividend."
In the first half of the year, General Motors faced strong headwinds in
the market because its product line included mostly trucks and
sport-utility vehicles, which consumers have increasingly abandoned in
the face of high gas prices, said Tom Libby, an analyst with Power
Information Network, an automotive research company.
He said the automaker also has faced increasing material costs and high
labor costs, representing an additional hurdle when competing with Asian
manufacturers on price.
"Their market share is under pressure now, and it will be for the rest
of the year," Libby added.
It will take months for GM to restructure its factories to produce the
smaller cars that have experienced increased demand, said Libby.
It will also take over a year for GM to realize the cost savings of the
recently negotiated contract with the United Auto Workers Union, said
David Cole, chairman of the Center for Automotive Research.
"The big question is whether they have enough cash to make it from here
to there," Cole said. "It is going to be tough, and it depends on the
economy. Once they start to realize their labor savings, we may see
profits increase like we have never seen from GM."