General Motors shares slump to 54-year low

General Motors (GM), the world’s largest carmaker, has seen its shares sink to their lowest level since September 1954 sparking concerns about its future.

Yesterday, shares in the company closed down 15% at $9.98, which as a result, sent the Dow Jones industrial average into bear territory, with a fall of 166.75 points to 11,215.51.

John Murphy of investment bank, Merrill Lynch, said that GM needs a capital infusion of approximately £7.5 billion ($15 billion) and that it had not acknowledged the stress in the capital markets.

Mr Murphy said bankruptcy is not impossible if the market continues to deteriorate and significant incremental capital is not raised.

Merrill Lynch’s warning is the harshest yet, but investors’ fears over the health of the three largest US carmakers, GM, Ford and Chrysler, have been growing steadily, largely due to the fact that petrol continues to rise, denting consumer confidence.

Last month, GM’s sales fell 18% in June, compared with June 2007. However, this was still a better performance than its close rivals.

However GM said that it has enough capital for 2008 and said it believes it has sufficient liquidity for the year despite lower volumes. Should conditions continue to deteriorate, we would consider other operating measures, said the company.

The average price of petrol in the US is just over $4 a gallon, this is an increase of over 35% in just one year.

US consumers are cutting back on spending and the spiralling petrol costs means motorists are switching to smaller vehicles.

David Healy, an analyst from Burnham Securities, believes that GM are unlikely to file for bankruptcy. However, conditions in the car industry are challenging for everybody currently, particular for GM, which is why people see this as plausible, he added.

Last month, GM announced it was to close a number of plants in North American and Mexico that make trucks and sports utility vehicles (SUVs).

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