General Motors will likely fall below its minimum cash needs of $11 billion to $14 billion in the first quarter of 2009 if the troubled automaker does not receive additional funding, said an analyst at Barclays Capital, and GM shares fell as much as 31 percent Monday.
Barclays' analyst Brian Johnson downgraded GM to "underweight'' from "equal weight.'' Deutsche Bank also cut GM to "sell'' from "hold,'' and saw an equity value of $0 for the stock, according to a report on theflyonthewall.com.
Reuters could not immediately verify the report.
"While further government assistance would decrease the likelihood of a GM bankruptcy, we believe any government assistance would likely significantly dilute GM's equity,'' Barclays' Johnson wrote in a note to clients.
Johnson cut his price target on the stock to $1 from $4.
"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,'' Johnson said.
"In any scenario, we see little value for current equity,'' he added.
Separately, an analyst at J.P.Morgan Securities said both GM and Ford Motor are likely to receive government aid, even as he widened his loss estimates for both companies after they reported far deeper-than-expected quarterly losses.
"Ford management's commentary on the third-quarter call as well as GM's comments raises our optimism that some form of government help is likely given dire Big 3 liquidity,'' JP Morgan's Himanshu Patel wrote in a note to clients.
On Friday, President-elect Barack Obama said help for the U.S. auto industry was a high priority and urged the Bush administration to do "everything it can'' to accelerate disbursement of $25 billion of loans to the industry previously approved to make fuel economy improvements.
"We view government aid as probable and likely sufficient in amount, but significant uncertainty exists surrounding the form of this aid,'' Patel said.
Any government aid for GM is likely (to) come with significant taxpayer protection measures, suggesting near-term or eventual equity dilution, he added.
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"GM equity could be interesting longer term, but we advise near-term caution given uncertainty on the structure of any potential government aid,'' Patel wrote in a note to clients.
The analyst widened his 2008 loss estimates for GM to $27.86 from $21, and for Ford to $3.35 from $3.20. He also widened his 2009 loss estimates for GM to $22 from $16.25, and for Ford to $3.10 from $1.90.
On Friday, GM and Ford said their rate of cash burn had accelerated.
The two burned through a combined $14.6 billion in cash in the face of deepening global downturn.
Ford and GM also said they expect their rate of cash use to decline in the fourth quarter.
JP Morgan's Patel expects GM will end 2008 with $12.6 billion of cash on hand, exclusive of government loans and modeling only $3 billion of capital raise. However, Barclays's Johnson expects GM to end the year with $13.3 billion in gross cash.
Shares of GM were back off their worst lows of the day, down about 24 percent on the New York Stock Exchange, while those of Ford were down about 3 percent.