GM and Ford shares jump on bailout outlook

DETROIT (Reuters) - Shares of General Motors Corp GM.N and Ford Motor Co (F.N) jumped on Wednesday after Deutsche Bank said chances have improved for the struggling 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 (C.N) 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 36.5 percent, or $1.30, to $4.86 on the New York Stock Exchange. Ford shares were up 26.5 percent, or 44 cents, to $2.10.

Lawmakers, who last week rejected pleas from GM, Ford and Chrysler LLC CBS.UL 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 break-even 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 were able to restructure outside of bankruptcy, existing shareholders would likely be diluted near no value for the stock, Lache said.

Some analysts have said they expect GM's remaining equity value to be essentially wiped out by a government recapitalization.

But trading in options on GM shares turned active and reflected speculation that GM's battered shares could rally further, one options strategist said.

William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York, said trading in GM calls with strike prices of $5, $6, and $7.50 was active on Wednesday. Call options give buyers the right to acquire a security at the predetermined price.

"There is speculation that the automakers are going to release their future business plan by Monday, which would allow the government to give the auto industry their funds for the bailout," said Lefkowitz.

GM shares last traded above $7 in October, before the automaker warned that it could run short of the cash needed to finance its operations by early 2009.

(Reporting by Soyoung Kim, with additional reporting by Doris Frankel in Chicago, editing by Matthew Lewis and Gerald E. McCormick)