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Dec 22, 2008

Automakers shares tumble as bailout sinks in

Washington's emergency loan program won't provide much of a lifeline for holders of General Motors Corp. shares, Wall Street analysts said.

The bearish reports, which warned that the measures called for in the loan program would severely dilute existing GM shares, sent GM's stock sharply lower. A negative outlook from Toyota Motor Corp. added to the pessimistic view of automakers Monday.

Buckingham Research auto analyst Joseph Amaturo said the $17.4 billion loan program approved by the White House is likely to diminish the value of GM stock in the long term as the company restructures and the government takes a stake.

Amaturo reiterated $1 price target on GM. The price target implies an expected 72 percent drop in value for GM's Monday close of $3.52.

GM and Chrysler LLC have three months to develop plans to restructure into viable companies. The value of GM shares are likely to be diluted as the government takes an equity stake and debt is converted to equity. Those steps, outlined in the loan program, would boost the pool of outstanding shares, Amaturo said.

Credit Suisse auto analyst Chris Ceraso said the restructuring demanded of GM "will require the complete and/or near-complete elimination of existing GM equity."

He cut his rating on GM to "Underperform" from "Neutral,"

The bailout, announced by the White House on Friday, requires GM and Chrysler to achieve "viability" by March 31. The loans may be called back if the government determines the automakers haven't meet that goal. Shares of GM plunged 97 cents, or 21.6 percent, to close at $3.52 Monday.

Ford did not lobby for government help, saying it has access to enough cash to survive the auto industry downturn. Still, its shares lost 36 cents, or 12.2 percent, to end at $2.59.

U.S.-traded shares of foreign automakers also declined. Toyota said it expected to post its first operating loss since it began releasing such reports in 1941, citing the crumbling automobile market. Shares of Toyota lost $3.50, or 5.4 percent, to $60.88.

Nissan Motor Co. shares fell 2 cents to $6.54. Daimler AG shares gave up $1.6, or 3 percent, to $34.61. Bucking the trend, Honda Motor Co. shares rose 15 cents to $20.48.

Source : BusinessWeek
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