GM, Ford shares jump on prospects of loans, oil
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Thu, 11 Sep 2008 20:51:12 GMT |
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By Soyoung Kim and Poornima GuptaDETROIT (Reuters) - Shares of General Motors Corp and Ford Motor Co jumped on Thursday as oil prices dropped to near $100 per barrel and analysts bet a potential $25 billion in federal loans would help the struggling U.S. automakers survive a deep industry downturn.U.S. lawmakers are discussing proposals to provide beleaguered U.S.-based automakers and their suppliers at least $25 billion in low-interest loans, a move that would allow them to retool factories and fund development of new technologies.JPMorgan analyst Himanshu Patel said in a research note that a majority of the loans -- as much as 75 percent -- could go to Detroit's Big 3 automakers.That would notably reduce their bankruptcy risk, he added."GM's risk profile in particular could improve markedly -- potential federal loans would in effect serve to reduce the required size or make it easier to execute any future capital markets transaction," Patel said in the note."Since the spirit of loans seems to be to lend Detroit a helping hand, all of the funds could be made available fairly soon."Shares of GM, the top-selling U.S. automaker, surged 11.65 percent, OR $1.33, to close at $12.75 on the New York Stock Exchange, where Ford rose 4.7 percent, or 21 cents, to $4.68.The stocks also got a boost after U.S. crude oil futures settled at $100.87.JPMorgan's Patel said that if GM would get about $6 billion of the proposed $25 billion loans, it would nearly cover the automaker's estimated cash burn for 2009. This is also broadly the amount investors believe the company needs to raise in the capital markets to survive the U.S. industry downturn, JPMorgan's Patel said.Auto executives said this week they are interested in pursuing federal loan guarantees as the potential government support of $25 billion or more for automakers in loan guarantees could help accelerate the development of advance technologies.Ford Chief Executive Alan Mulally said lawmakers now take a more favorable view of the industry's efforts to increase fuel efficiency."The only conversation we have now is, what is the right way to finance, and what is the right provision for deciding which companies participate," he said earlier this week. "We are very positive."Chrysler Vice Chairman and President Jim Press said on Wednesday that a loan guarantee of $25 billion was an appropriate place to start.An energy bill passed by Congress in December mandated a 40 percent increase in vehicle fuel efficiency standards by 2020 but also included a provision for $25 billion of loan guarantees to support plant retooling.Lawmakers have not yet approved the funding for that program. To meet provisions in the law, Congress would have to approve spending $3.8 billion of taxpayer funds to cover the potential default costs of $25 billion in low-interest loans.(Reporting by Soyoung Kim and Poornima Gupta, editing by Richard Chang)
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