GM, auto shares tumble as outlook darkens

By Kevin Krolicki

DETROIT (Reuters) - Shares of automakers General Motors Corp (GM.N) and Ford Motor Co (F.N), parts suppliers and auto retailers all tumbled on Wednesday as investors reacted to signs of a further slowdown in June auto sales and uncertainty about when the battered industry will hit bottom.

The sector-wide decline was accompanied by cautious notes from analysts on GM's liquidity and by a warning from CarMax Inc (KMX.N) of the fallout from an unprecedented collapse in demand for larger trucks and SUVs.

In a move that underscored the pressure on the industry, Chrysler Chief Executive Bob Nardelli also told employees of the privately held automaker that overall sales had fallen below forecasts in early June.

GM's shares dropped almost 6 percent, touching their lowest level since the recession of 1982. Ford stock also fell nearly 6 percent, erasing gains for the week.

CarMax shares plunged nearly 11 percent as the largest U.S. used-car dealer suspended its financial forecast and said traffic at its stores had weakened since late May.

Shares of major new car dealership groups, including AutoNation Inc (AN.N) and Group 1 Automotive Inc (GPI.N), also traded down.

Analysts at JP Morgan and Deutsche Bank warned that GM could be forced to borrow heavily as industry-wide U.S. vehicle sales head toward their lowest level in more than a decade.

"GM is burning cash fast, but it (unlike Ford) still has many unencumbered assets that can be borrowed against," JP Morgan analyst Himanshu Patel said in a note for clients.

"The bank debt market is expensive but open, and we believe GM, most likely before year-end and perhaps as early as the third quarter, may announce a secured bank deal," he said.

Patel said he expected GM could borrow up to $10 billion, secured by assets such as its overseas operations, trademarks for brands and inventories.

For his part, Deutsche Bank analyst Rod Lache said he expected GM would be forced to come up with a more "aggressive" restructuring that would allow the automaker to borrow funds to ride out a projected cash burn of $19 billion through 2009.

Lache also cut his industry-wide U.S. auto sales outlook for 2008 and the following two years saying leading indicators pointed toward continued "recessionary levels" of demand.

Lache said he now expects 2009 industry-wide sales of about 15 million vehicles, and sales of 16 million vehicles in 2010. More immediately, he said, there was evidence that June sales were falling to "surprisingly low levels."

A survey of dealers, he said, suggested the seasonally adjusted, annualized rate of sales was running near 13 million vehicles in the first half of the month, down from 15.2 million in the first quarter and near 14.4 million in April and May.

NO SENSE OF A TURNAROUND