General Motors can’t catch a break. After writing a glowing piece on GM’s prospects in the spring, financial newspaper Barron’s has reversed course, telling investors to get out while they can. It also told investors to ditch GM bonds.
Deutsche Bank joined the fray, moving GM from "hold" to "sell" and putting its target price on the carmaker at zero. GM closed Friday at $4.36 and traded pre-market Monday well under $4.
The German investment bank says that the U.S. auto giant will have to rely on a government intervention to stay alive, but even if that were to happen shareholders would be left holding the bag.
If the government doesn’t step in, Deutsche Bank told investors, collapse is inevitable and would precipitate systemic risk affecting other automakers, suppliers, retailers, and parts of the U.S. economy.
GM is fighting for its life. CEO Rick Wagoner went on the financial news shows on Friday during the trading day and went so far as to compare GM to Lehman Brothers, the bank which Treasury Secretary Henry Paulson decided not to rescue, and whose subsequent collapse has been blamed for the worst of the credit crisis so far.
If GM does file bankruptcy, a similar, Lehman-like ripple effect would result, Wagoner warned.
At minimum, bankruptcy would scare off the customers GM has left. “You can’t sell cars to people under those circumstances,” Rick Wagoner told CNBC.
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