GM: Where is the light?

Seems like there is no respite in the offing for GM as its shares, on Wednesday, sank to their lowest level in more than 50 years. This followed Merrill Lynch’s speculation of near term bankruptcy for the car maker and the rating cut for GM from “buy” to “underperform”. Predictions of short cash reserves and a nearterm bankruptcy filing, along with the declining US auto market influenced GM shares, which plunged down to less than US$ 10 and are expected to go down below US$ 7.

GM’s over dependence on the truck and SUV market, which has seen sales falling to the lowest level in the last one decade, rise in oil prices, weak US dollar, and shift in consumer demand from SUVs and trucks towards small and fuel-efficient cars and crossovers are playing havoc on its performance. It is believed that the company requires to raise nearly US$ 15 billion to keep its business afloat.

GM is not sitting quiet and has been trying its best to come out of red. It has restructured its North American operations and begun producing more cars and attractive models. However, the initiatives couldn’t stop the company from bleeding. GM could have shown poorer results but for the sudden demand for certain small and midsize cars. One positive for GM is that it has performed better that its US-based rivals.

Finally, Citi Investment Research analyst, Itay Michaeli sums up the situation brilliantly saying, “While we do not believe GM is facing an immediate cash crunch, the urgency to shore up liquidity to navigate through a difficult 2008-09 has risen significantly in recent months.” (Quote from MSNBC)