General Motors Corp shares plunged to their lowest level since 1950 on Thursday as concerns mounted that an industry decline that started in the United States was spreading and a leading forecaster warned global auto demand could "collapse" in 2009.
GM shares fell as much as 33 percent to $4.65, driving its market capitalisation to its lowest level since 1929, according to California-based Global Financial Data. The stock closed down 31.11 percent at $4.76 on the New York Stock Exchange.
Shares of Ford Motor Co hit a 26-year low, shedding as much as 24 percent. The stock closed down 21.8 percent at $2.08. Shares of major auto parts makers also declined. At its low, GM's market capitalisation stood at $2.6 billion, compared with a market capitalisation of about $4 billion in March 1929 before the stock market crash that preceded the Great Depression.
J.D. Power and Associates, a forecaster used by many in the industry to prepare their own outlooks, warned that no region was immune to financial turmoil, which has been hitting mature automotive markets harder than the emerging areas.
Standard & Poor's said on Thursday it could cut GM and Ford's credit ratings deeper into junk, saying that both automakers had enough liquidity through 2008, "but the accelerating deteriorating industry fundamentals will be a serious challenge to liquidity during 2009."
GM's decline accelerated after the S&P warning, and it was one factor that contributed to a sharp slide in the Dow Jones Industrial Average, of which GM is a component. Mirko Mikelic, a portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, said sinking consumer confidence was probably the biggest reason for the decline in GM and Ford shares.
"Outside of the financial sector, there are issues with big ticket, discretionary consumer purchases like vehicles, so yes, auto stocks are absolutely among the most vulnerable," Mikelic said. US auto sales have fallen nearly 13 percent through the first nine months of 2008 and forecasters expect the worst year for sales since the early 1990s, and further declines in 2009 as the industry buckles under weak consumer demand.
The reports added pressure on US-based GM, Ford and Chrysler, which are deep into restructuring plans and looking for ways to conserve cash until sales rebound. Analysts say that other automakers in the US market, led by Toyota Motor Corp, have deeper pockets to withstand the sales downturn. Toyota made an unprecedented interest-free loan offer on 11 vehicle models after posting a 32 percent drop in sales in September. The program may be extended, North American sales chief Jim Lentz told Reuters on Thursday.
Of GM, Fitch Ratings managing director Mark Oline said: "There are heightened concerns that the economic conditions and the credit crisis will take a deepening cut out of volumes."
GM has announced plans to try to increase liquidity by $15 billion through cost cuts, asset sales and new borrowing. GM spokeswoman Renee Rashid-Merem said the automaker remains focused on its liquidity plan and declined to comment on its stock price movements.
An investment banker who declined to be named because he is not authorised to comment on the record attributed the share decline to elimination of short-selling restrictions on the shares that had put the equity value out of balance with bond and credit-default swaps values.
"It all has to rebalance now," the banker said. Oline said GM's main difficulty was in the deteriorating domestic US market, but there was concern that a global downturn in demand could hit GM's international operations as well, particularly in Western Europe, Russia and China. "A further cut in volumes calls into question the adequacy of their liquidity and raises concerns about trade credits throughout the supply chain," he said.
GM, the largest US-based automaker, posted a $15.5 billion net loss in the second quarter and plans to increase production of more fuel-efficient cars in North America to adjust to dropping demand for pickups and SUVs.
Striking the right production balance between cars and trucks is hard. Credit Suisse believes GM and Ford may have to dial back on passenger car production in the coming months. GM could be expected to update its liquidity plans when it posts third-quarter results. It has not said when it will report its earnings. Analysts and auto executives cut US light vehicle sales forecasts for 2008 and 2009 as high gas prices buffeted sales of large vehicles earlier in the year and the credit crisis further weighed on consumer confidence.
More recently, there have been signs of slowing in mature European markets and more moderate growth expectations for emerging markets where automakers had aimed resources. GM, which posted a 1.9 percent sales decline in Europe through the first nine months of 2008, and Ford have relied, to some extent, on growth outside North America to support them as they restructure at home. Industry forecasters J.D. Power and Global Insight have lowered expectations for 2008 US light vehicle sales and predict a slow recovery. They have also questioned sector growth in key regions overseas.
"While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse," said Jeff Schuster, J.D. Power's executive director of automotive forecasting. In the United States, J.D. Power expects 2009 industry sales of 13.2 million, while Global Insight expects 13.4 million. US auto sales were roughly 16.15 million units in 2007.
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