GM, auto shares tumble as outlook darkens : US Business

By Kevin Krolicki

DETROIT (Reuters) - Shares of automakers General Motors Corp and Ford Motor Co , parts suppliers and auto retailers all tumbled on Wednesday as investors reacted to signs of a further slowdown in June auto sales and uncertainty about when the battered industry will hit bottom.

The sector-wide decline was accompanied by cautious notes from analysts on the toll the downturn was taking on GM's liquidity, and by a warning from CarMax Inc of the fallout from an unprecedented collapse in demand for larger trucks and SUVs.

In a move that underscored the pressure on the industry, Chrysler Chief Executive Bob Nardelli also told employees of the privately held automaker that overall sales had fallen below forecasts in early June.

GM's shares dropped more than 5 percent, touching their lowest level since the recession of 1982. Ford stock also fell 4 percent, erasing gains for the week.

CarMax shares plunged 13 percent as the largest U.S. used-car dealer suspended its financial forecast and said traffic at its stores had weakened since late May.

Shares of major new car dealership groups, including AutoNation Inc and Group 1 Automotive Inc , also traded down.

Analysts at JP Morgan and Deutsche Bank both warned that GM could be forced to borrow heavily as industry-wide U.S. vehicle sales head toward their lowest level in more than a decade.

"GM is burning cash fast, but it (unlike Ford) still has many unencumbered assets that can be borrowed against," JP Morgan analyst Himanshu Patel said in a note for clients.

"The bank debt market is expensive but open, and we believe GM, most likely before year-end and perhaps as early as the third quarter, may announce a secured bank deal," he said.

Patel said he expected GM could borrow up to $10 billion, secured by assets such as its overseas operations, trademarks for brands and inventories.

For his part, Deutsche Bank analyst Rod Lache said he expected GM would be forced to come up with a more "aggressive" restructuring that would allow the automaker to borrow funds to ride out a projected cash burn of $19 billion through 2009.

Lache also cut his industry-wide U.S. auto sales outlook for 2008 and the following two years saying leading indicators pointed toward continued "recessionary levels" of demand.

Lache said he now expects 2009 industry-wide sales of about 15 million vehicles, and sales of 16 million vehicles in 2010. More immediately, he said, there was evidence that June sales were falling to "surprisingly low levels."

A survey of dealers, he said, suggested the seasonally adjusted, annualized rate of sales was running near 13 million vehicles in the first half of the month, down from 15.2 million in the first quarter and near 14.4 million in April and May.

NO SENSE OF A TURNAROUND

Nardelli's memo to Chrysler employees, first reported by the Detroit Free Press, said outside data showed a deep slump in early June sales for the industry.

"This is the lowest sales level in 16 years and indicates a significant and continued softening of the U.S. automotive market," Nardelli said in the memo.

Tom Folliard, CarMax president and chief executive, told analysts on a conference call that demand had fallen steadily over the past several months for pickup trucks and SUVs -- a once-lucrative segment dominated by the Detroit automakers.

"This has been going on for really since the beginning of the year and has really steepened in the last couple of months. And as of right now, I couldn't tell you when it's going to turn," Folliard said.

Auto suppliers' shares were also hit. American Axle &Manufacturing Holdings , which supplies axles and related components for trucks and SUVs, dropped 7 percent.

In addition, Magna International Inc said it would lay off about 400 workers from a St. Thomas, Ontario, parts plant, where it makes truck frames, due to what it called a "considerable downturn" in demand for full-sized trucks.

GM, a major customer for Magna and American Axle, recently said it would shut four North American truck plants, reducing its pickup truck and SUV capacity by more than 700,000 units.

GM shares touched an intraday low of $14.75 on the New York Stock Exchange. That was the lowest level for the stock since January 1982, according to the automaker's investor relations Web site.

(Additional reporting by Poornima Gupta in Detroit and John McCrank in Toronto; Editing by Maureen Bavdek)

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