Panicking investors are dumping shares in America's biggest car manufacturers, amid suggestions that collapsing sales could push them to the brink of bankruptcy.
General Motors, the world's biggest car maker and producer of American icons such as the Chevrolet, the Cadillac and the Hummer, saw its shares plunge to the levels of more than 50 years ago, after a Wall Street analyst predicted it would need to raise emergency cash from shareholders to stave off insolvency.
And in the skittish atmosphere, Chrysler, which is owned by the private equity firm Cerberus Capital but whose bonds trade on the financial markets, felt it necessary to deny rumours circulating in Europe that it had already begun considering plans to seek bankruptcy protection.
With renewed gloom over the economy, due to weakening consumer confidence and rising food and fuel bills, and fears of more losses in the financial sector due to the credit crisis, the Dow Jones Industrial Average slumped 358 points – or 3 per cent – to 11.453.4, having accelerated lower through the afternoon.
The American car industry is emerging as a particularly significant casualty of high oil prices, which closed at another new record level in New York last night, up $5.09 at $139.64. Earlier, it had traded above $140 for the first time, as Libya said it might actually cut output. US petrol prices have soared and consumers are switching away from gas-guzzling SUVs in droves, a move which favours foreign car makers. Twice in the past three months, Ford and GM have announced sweeping cuts to production of their largest models but sales of many models are now running some 20-40 per cent below last year.
Yesterday, Edmunds.com, the industry research firm, slashed its forecast for the total number of vehicle sales in the US this year from 15.5 million to 14.9 million.
And Goldman Sachs told its clients to sell their General Mot-ors shares because growing losses increase the chances of a cash crunch. "We expect GM shares to continue to underperform as market fundamentals deteriorate, exacerbating liquidity concerns," the analyst Patrick Archambault said. "We think GM's automotive cash flow burn this year and next is likely to lead it to look to raise capital, which we believe could lead to significant shareholder dilution and/or a cut to the company's dividend."
GM shares closed last night down 11 per cent at $11.43. At their lowest point before the end of trading, they matched a 1974 nadir and were back to the same levels the stock first traded at in 1955. Ford shares fell 3 per cent, and the cost of insuring the bonds of all three major car makers against default rose.
Investors fear the US car makers also face problems in their vehicle financing divisions. This week, the rating agency Fitch downgraded GM and Chrysler debt further into junk territory and Chrysler dipped into a $2bn credit line from Cerberus and former parent company Daimler.