GM shares tumble after U.S. rejects turnaround plan

DETROIT/NEW YORK (Reuters) - Shares of General Motors Corp tumbled nearly 30 percent on Monday after the U.S. government rejected its multibillion-dollar rescue plea and warned bankruptcy might be the best path for GM to restructure.

The Obama administration forced out GM Chief Executive Rick Wagoner and pledged only to fund GM's operations for the next 60 days while it develops a new restructuring plan, instead of granting GM's request for more than $16 billion in additional loans.

Ford Motor Co shares also fell -- 16 percent to $2.39 -- and major auto parts suppliers dropped across the board amid concern that bankruptcy for GM, the largest U.S. automaker, would trigger a cascade of failures in the sector already pushed to the brink by the lowest auto production in three decades.

"Expectations of additional support have had negative consequences, such as reducing pressure on creditors to agree to concessions," Deutsche Bank analyst Rod Lache said in a research note. "We believe that the U.S. auto task force understands the dynamic that's taking place among various stakeholders."

Standard & Poor's analyst Robert Schulz said in an interview that bankruptcy risk remains high for GM, Ford and Chrysler LLC, controlled by Cerberus Capital Management.

Debt protection costs for GM rose. GM's five-year credit default swaps rose to an upfront payment of 79.5 percent the sum insured plus 500 basis points a year from 77 percent on Friday, according to Phoenix Partners Group.

GM shares were down 29 percent to $2.57 in early trade on the New York Stock Exchange. The stock had rallied by more than 30 percent in the past 10 trading sessions as investors and analysts bet bankruptcy had become an increasingly remote risk.

However, the government task force overseeing the restructuring of the auto industry said on Monday GM's current turnaround plan would not provide viability over the long term even if the economy improved.

An expedited bankruptcy process to help the automaker eliminate unsustainable debt loads could be the best path if out-of-court restructurings with bondholders and the United Auto Workers union cannot be negotiated, task force officials said.

GM has been relying on $13.4 billion of government loans to survive since the start of the year. Under the terms of the bailout granted by the Bush administration, GM had been required to cut its debt by two-thirds and pay half of its obligations into a retiree healthcare fund in stock, instead of cash.

Shares of American Axle & Manufacturing, a major parts supplier for GM, fell 17 percent to $1.56.

(Reporting by Soyoung Kim, additional reporting by Walden Siew, editing by Dave Zimmerman)