A Red Light For GM (GM)

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GM (GM) says it has plenty of money on hand for tough times. So do Ford (F) and Chrysler. Based on where the two public companies trade, almost no one believes that.

As if to confirm the market’s concerns, GM says it may raise some money. According to Bloomberg "General Motors Corp., the biggest U.S. automaker, said it still has enough liquidity for its operations through 2008 and will consider cutting costs or raising more money if the U.S. economy doesn’t improve."

The statement is enough to send investors looking for their Prozac. GM has $24 billion on hand plus access to lines of credit. To think that the current cash would not be enough by double would be to acknowledge that the company could hit extremely hard times.

The worst case for GM is very possible. If US car sales drop to a rate of 14.5 million this year and GM’s market share moves down, the company could bring in billions of dollars less than it did last year. Overseas sales will not make up for that.

The possibility that GM may raise cash is an SOS from the company’s largest car maker.

Douglas A. McIntyre