Business | Economy
Goldman says GM needs $22b bailout
Goldman Sachs suspended its rating on General Motors Corp yesterday and said the automaker needed at least $22 billion (Dh80.82 billion) in federal aid to survive a deepening industry downturn.
- Reuters
- Published: 23:54 November 13, 2008
Detroit: Goldman Sachs suspended its rating on General Motors Corp yesterday and said the automaker needed at least $22 billion (Dh80.82 billion) in federal aid to survive a deepening industry downturn.
Goldman Sachs forecast the No 1 US automaker will end 2008 with $12.5 billion in cash, within the $11 billion to $14 billion minimum range GM has said it needs to operate, requiring GM to look towards the government for aid.
GM's shares, which hit a 65-year low this week, slipped about 5 cents, or 1.6 per cent, to $3.03, as the market awaited details on whether the US government would push forward with a rescue plan for the auto industry.
Goldman Sachs said a new programme to support the auto industry is most likely, though the timing was uncertain.
Also yesterday, JP Morgan cut its GM rating to "neutral" from "overweight" and said the automaker needs "something immediately" to make it through the end of the year.
JP Morgan, which also slashed its target price for GM stock to $1.84 from $3.08, said a government bailout could easily reach $30 billion unless GM reforms its vast liability structure.
Latest warnings
The warnings are the latest in a series of gloomy forecasts from Wall Street banks in the wake of GM's deeper-than-expected third-quarter loss and cash burn announced last week.
Analysts have warned that any government assistance, which they believe is a must for GM to survive through early 2009, would come at a significant cost to existing shareholders. US lawmakers have said in recent days they might support efforts to aid the struggling industry over and above $25 billion of low-interest loans previously approved to support capital investment to meet new fuel economy mandates.
Lawmakers will hold a hearing next week to consider a bill to provide another $25 billion in federal loans to US auto manufacturers, possibly using part of the $700 billion financial market rescue law enacted last month.
However, the White House said yesterday it was not the intent of Cong-ress to use the financial rescue package to help ailing US automakers.
GM, Ford Motor Co and Chrysler are all burning through cash amid a global credit crunch that has accelerated the decline in US auto sales and placed severe limits on corporate and consumer borrowing.
GM ended September with $16.2 billion in cash, down from $21 billion at the end of the second quarter.
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