GM, Ford Shares Jump On Bailout Outlook

DETROIT, MI. November 26, 2008: According to Automotive News, Shares of General Motors and Ford Motor Co. jumped today after Deutsche Bank said chances have improved for the struggling U.S. automakers to receive a government bailout.

"There is growing concern about the risks to the U.S. economy that would be derived from inaction," Deutsche Bank analyst Rod Lache said in a research note.

"The proximity of these bailout hearings to the Citigroup bailout may have also tipped the scales somewhat," Lache said, referring to the massive government rescue of the bank announced Sunday.

Shares of GM, which hit a 70-year low of $1.70 last week, surged 35.1 percent today to close at $4.81 a share -- up$1.25 a share on three times the stock's normal trading volume on the New York Stock Exchange. At one point the stock reached $5.87 before retreating during the afternoon.

Ford shares closed up 29.5 percent, or 49 cents, to $2.15 a share. Trading volume was more than double the daily average.

Lawmakers, who last week rejected pleas from GM, Ford and Chrysler LLC for $25 billion in federal loans and asked the companies to submit detailed turnaround plans, are rescheduled to convene out of session in the week of December 8 to review the plans and consider aid.

Lache said the U.S. automakers would likely present "relatively aggressive" plans to Congress, addressing challenges to both operating costs and revenues.

"We believe winning over skeptics will require U.S. automakers to submit plans that demonstrate an ability to achieve cash flow breakeven at relatively low demand and conservative market share levels," Lache said.

He added GM could cut its annual fixed costs for North American operations to the low $20 billion range from the current $31 billion, but that would involve "significant execution and timing risks."

Even if GM is able to restructure outside of bankruptcy, existing shareholders will likely be diluted to near $0 value for the stock, Lache said.