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Shrinking GM, Part 2

GM is shrinking again. And this time, I’m not talking about its sales, market share or payrolls. The stock price dropped 15% to under $10 a share today, a 54-year low. It closed at $9.98 a share, which is off 72% over the past 12 months.

The reason: In addition to its sales falling 18% in June, Merrill Lynch analyst John Murphy suggested in a research note that bankruptcy isn’t out of the question. GM had $24 billion in cash and a credit line to borrow another $8 billion at the end of the first quarter. With truck sales in a freefall, GM is burning cash quickly. A Chapter 11 filing may not be around the corner—and GM will do anything to avoid it—but it’s not out of the question.

With its stock under $10 a share, there’s another worry. GM’s market cap is now down to a paltry $5.7 billion. Some corporate raider could swoop in and buy control of the company for less than $3 billion. Billionaire investor Kirk Kerkorian could come up with that money, since he tabled a $4.5 billion bid for Chrysler last year. Kerkorian is already invested in Ford, and hence not a candidate for a run at GM. But you get the idea.

So who would want it? Only a brazen risk taker. No one knows when this sales swoon will end. Nor can anyone know if Americans will embrace domestic passenger cars and compacts they way they loved Detroit’s suvs and pickup trucks. The car biz has been the domain of the Japanese and Korean companies for years. If GM and its crosstown competitors can’t learn to boost sales with smaller, more efficient vehicles and generate the kind of profits and cash from them, a financial turnaround will be tough to realize.

Also, any raider who bought GM would be the proud owner of some $40 billion in debt and whatever else GM needs to borrow to get through this acrid era of expensive gasoline, a weak economy and the housing bust. And if they need a guinea pig, just look at Cerberus Capital Management. The company bought 51% of auto and mortgage lender GMAC and then grabbed 80% of Chrysler only to see those two companies stumble. The U.S. auto business is not an easy place to make money. Only a player with a lot of guts and—hopefully—a real plan would make a run at GM.

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