General Motors May Face Bankruptcy

General Motors Corporation (GM) is one of the largest automobile manufacturers in the world. But weak North American sales, falling production volumes and rising raw material costs are increasing our concern for the stock. The company might face bankruptcy if it does not receive any government aid. These issues compel us to rate the shares a Sell with a six-month target price of $2.

GM states that despite implementing the planned operating actions, the company’s estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business. Looking into the first two quarters of 2009, even with its planned actions, the company’s estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions improve significantly.

Significant incentives to stimulate sales and keep inventories lean are eating into margins. Furthermore, GM sales are hampered by poor resale values. The company is at a disadvantage compared to its competitors owing to huge pension and health care costs.

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