GM drops to 53-year low, Goldman urges "sell"

By Kevin Krolicki

DETROIT (Reuters) - Shares of General Motors Corp hit their lowest level since 1955 and dragged down the auto sector on Thursday after Goldman Sachs cut the struggling U.S. industry's largest manufacturer to a "sell" rating and warned it would have to raise capital.

The panicky slide in GM (GM.N) shares capped a period of growing concern about liquidity risks to U.S. automakers and suppliers from a domestic auto market reeling from record gas prices and the impact of a housing slump and tighter credit.

The Goldman Sachs warning, including the unusual "sell" call on the U.S. auto industry's largest player after a period of sharp stock price declines just ahead of the close of the second quarter, prompted selling across the sector.

GM Chief Executive Rick Wagoner said the embattled automaker had enough liquidity to carry it through the year and had financial flexibility beyond that.

"We've got a very good, solid funding base under any scenario we see, solid through the end of this year," Wagoner told reporters after an economic event hosted by U.S. presidential candidate Barack Obama. "We have a lot of options to fund beyond that."

Chrysler LLC, for its part, denied rumors it was facing a cash crunch or that it had been driven to filing for Chapter 11 bankruptcy. Those rumors had driven down loan prices for the privately held automaker, according to Reuters LPC.

"The rumor is without merit," Chrysler spokesman Dave Elshoff said. "There is no basis for the rumor."

Debt and equity markets were affected by growing concern for the deepening risks for the auto sector. The cost to insure the debt of GM and Ford Motor Co (F.N) hit records.

GM shares were down nearly 11 percent in early afternoon trade and touched a low of $11.21.

Major GM suppliers were also hammered. Shares in American Axle & Manufacturing Holdings (AXL.N), which supplies axles for GM trucks, dropped 12 percent. Lear Corp (LEA.N), downgraded to a "sell" rating by Goldman, tumbled 18 percent.

Shares in Ford, which had its price target cut by Goldman, dropped almost 5 percent.

With the Thursday price fall, GM's market cap fell to less than $6.5 billion. The company has the smallest market capitalization in the Dow Jones industrial average .DJI, of which it has been a component since 1925.

Next above GM in terms of market value in the Dow is Alcoa Inc (AA.N), with a market cap of about $30 billion. Walt Disney Co's (DIS.N) cap is 10 times GM's at about $60 billion and Exxon Mobil Corp (XOM.N) is the leader at about $460 billion.

GM shares have lost 38 percent over the last month as more evidence has piled up that U.S. auto sales weakened further in June, raising doubts about the prospect for the second-half recovery that GM and other major automakers had anticipated.

Fitch Ratings on Wednesday cut debt ratings on GM and Chrysler ratings deeper into the "junk" category," citing the fallout from weaker sales and high gas prices.