Shares in General Motors recovered slightly Friday a day after plunging to their lowest levels since the 1950s on concerns the giant automaker will struggle to fund its operations.
At about 1520 GMT, GM's shares were up 3.36 percent at 4.92 dollars. Those of Ford, which were also under pressure on Thursday, stood at 2.39 dollars, up 14.90 percent.
At these prices, GM, the number one US carmaker marking its 100th anniversary this year, has a value of just 2.7 billion dollars. Ford, faring just a bit better, has a market value of 4.7 billion dollars.
The concern about GM stems from a statement by ratings agency Standard and Poor's (S&P) that it was considering lowering its rating on the carmakers' long-term debt, which is already in junk territory at "B-".
S&P said that GM has "adequate liquidity for at least the rest of 2008 as measured by cash balances and available bank facilities, but the accelerating deterioration in industry fundamentals will be a serious challenge to liquidity during 2009."
The agency said it had placed some Ford and GM debt on watch for a downgrade.
"The CreditWatch placement reflects the rapidly weakening state of most global automotive markets, along with capital market conditions that will remain a serious challenge for the foreseeable future," Standard & Poor's credit analyst Robert Schulz said.
Total auto sales in the US fell 26.6 percent in September over 12 months and are now down 12.8 percent for the first nine months of the year, according to industry data.
Sales of General Motors vehicles in the US dropped 16 percent drop and demand is also weakening in western Europe.
Furthermore, both GM and Ford are having difficulties with their car financing units GMAC (49-percent owned by GM) and Ford Motor Credit, which have been constrained by the credit crunch.
For Gregori Volokhine, an analyst at Meeschaert New York, the news from S&P was "extremely serious" since any further downgrade of bonds would make it even more difficult for the companies to access capital markets and tap investors for money.
Volokhine said that the market on Friday was "correcting itself now that the (US government) is going to have to keep rescuing whatever it can" amid the expanding financial crisis. "But you cannot rescue everything," he stressed."
In late June, GM had 21 billion dollars in available funds and another five billion in lines of credit, which it used up in recent weeks. S&P says GM should go through up to 16 billion dollars of cash this year alone.
In July, GM unveiled some restructuring moves meant to free up as much as 15 billion by 2009.
Ford meanwhile had 26.6 billion in available funds in July could see its cash level fall to 10-12 billion in the next 18 months, according to another ratings agency, Fitch.
As far as the massive 25-billion-dollar loan recently voted on by Congress to try to bolster the industry, it is in any case not enough to keep the market in gear. Its fate is unclear but it would not clear up Ford and GM's credit woes, S&P says.
Ford and GM are under mounting pressure as the US auto industry as a whole is facing unprecedented weakness.
Thursday JD Power revised downward a forecast for the US auto industry in 2008 saying the volume of cars sold would be off 16 percent from 2007.
