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GM Sputters on Cash Concerns


Automaker may need to raise yet more funds.

General Motors (GM) has been having a rough go - no doubt about it.

As an example of what I mean, there's been a fair amount of talk over the last few days surrounding the automaker and its potential cash needs. It all started last Friday, when it was Minyanville's Why Wall Street Will Never Be the Samereported that the company intended to draw down $3.5 billion from a credit facility for its planned restructuring.

However, GM's ears must have been ringing, because the talk about the company didn't end there. On Monday, Fitch Ratings "cut GM's rating by one notch to 'CCC', the eighth-lowest speculative grade in its corporate rating scale," which probably didn't help improve the investment community's perception of the company, either.

Making matters potentially worse, the price of oil rose more than $16, to almost $121 per barrel, and Congress had yet to act on the much-talked-about bailout plan. Both of those things could ultimately have an adverse impact on large consumer purchases as well.

My thoughts and concerns about General Motors given the events of the last few days are as follows:

1. Will the company need to raise money?

2. If it does need to obtain funding, is there anything that it would rule in or out, such as a convertible debt offering?

3. Will more cost-cutting be needed? If so, will there be upfront costs?

4. What else can the company do to accelerate or focus on smaller more fuel efficient car sales?

5. I'm a bit concerned to see how sales of its larger vehicles (e.g. the GMC Yukon) will be in the weeks ahead given the perk up again in oil prices.

6. I think that its IR team needs to be very proactive - and to let us know if there are any shoes that might drop. I think the last thing anxious shareholders need right now is a big surprise.

The way things stand right now, I wouldn't touch GM. There are too many balls up in the air, and not nealry enough answers. I suspect that we may see the shares fall off further in the days ahead, as some retail and institutional investors come to the same conclusion.

General Motors closed at $11.58, down $1.50, or 11.47%.

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No positions in stocks mentioned.

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