DETROIT - General Motors Corp will need to raise about $15 billion in cash to shore up liquidity and bankruptcy is "not impossible" if the U.S. auto market continues to slump, Merrill Lynch said Wednesday.

Merrill Lynch analyst John Murphy said in a research note he cut GM to "underperform" from "buy" and lowered his price target for the largest U.S. automaker to $7.

Shares of GM fell more than 4 percent to $11.25 in early trading on the New York Stock Exchange.

Murphy also lowered his forecast for 2008 U.S. industry-wide light vehicle sales for the third time this year and said the recent drastic decline in sales would likely to continue through 2009.

He expects 14.3 million U.S. auto sales this year and 14 million units for next year. That compares with 16.15 million units in 2007.

Although analysts have said GM will need to raise capital to cover continued losses before 2010, $15 billion is a higher estimate than any other analysts have suggested.

"The recent extreme deterioration in volume and mix is driving much higher cash burn and eroding GM's cash position," Murphy said. "We believe $15 billion is necessary because there is downside risk to our current estimates and a greater cushion is essential."

Murphy said a decline of 1 million vehicles in annual U.S. auto sales equates to about $3 billion in cash burn.

Any capital GM raises has the potential to dilute equity if it's done through convertible offering, one of the possibilities for the automaker.