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Market Watch

Deutsche Bank sees GM shares as likely worthless
Automotive giant may have trouble funding past December, broker warns

By Simon Kennedy, MarketWatch
Last update: 9:48 a.m. EST Nov. 10, 2008

LONDON (MarketWatch) -- Shares of General Motors Corp. got downgraded to sell from hold and were labeled Monday as likely to be worthless by Deutsche Bank, which said the car maker may not be able to fund its U.S. business past December without government intervention.
GM's shares, part of the Dow Jones Industrial Average, dropped 17% to $3.62 in early action, continuing their recent retreat.

Deutsche Bank analyst Rod Lache said in a note to clients that he believes the government will be compelled to intervene to shore up Detroit-based GM through a capital infusion or loan.

Deutsche Bank also maintained its rating on Ford Motor Co. at hold.
If GM manages to avoid bankruptcy, equity shareholders are unlikely to get anything back, Lache said in slashing his target price for the shares to nil from $4.

"Without government assistance, we believe that GM's collapse would be inevitable, and that it would precipitate systemic risk that would be difficult to overcome for automakers, suppliers, retailers, and sectors of the U.S. economy," the note said.

"As part of GM's restructuring, we are also convinced that a large number of stakeholders who are senior to GM's equity will have to settle for pennies on the dollar," it added.

A report by the Center for Automotive Research last week estimated that 3 million jobs could be lost in the first year if all three major Detroit manufacturers were to halt U.S. production.

In addition, the economy could lose $156 billion over three years through lost wages as well as lower receipts from social security and income taxes, according to Sean McAlinden, the center's chief economist.

"Even if GM succeeds in averting a bankruptcy, we believe that the company's future path is likely to be bankruptcy-like," said Lache.
He estimated the U.S. may have to provide GM with at least $10 billion in loans to keep it afloat through 2010 and as much as $25 billion to fund the company's cash burn and restructuring.

As for Ford, Deutsche Bank said the company still has the potential to restructure without falling into bankruptcy, again possibly on the receiving end of government assistance.

If Ford can avoid impairments over the next year or two, it may be able to boost its market share from the inevitable shrinking of GM and also benefit from more competitive labor costs.


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