America's Big Three automakers are looking awfully small these days.
Speculation about asset sales, takeovers and even bankruptcy for the former titans of Detroit raged Thursday as a stock market rout after a downgrade by Goldman Sachs brought shares of General Motors Corp. to their lowest level since December 1974.
When the selling was over, the stock price of GM, the nation's largest automaker, stood at $11.43 -- a decline of $1.38, or 11%. With a market capitalization of $6.47 billion, it would take 23 GMs to equal the $148.8-billion valuation of Japanese rival Toyota Motor Co.
Ford Motor Co.'s stock, meanwhile, fell 17 cents to $5.07, near its 52-week low and more than a third below its value of one year ago. Ford's market cap stood at $11.37 billion at day's end.
Chrysler is privately held.
America's carmakers are in increasingly dire straits. Faced with plummeting sales of their most lucrative products -- trucks and sport utility vehicles -- as well as overproduction and excessively large dealership networks, none is expected to be profitable in the near future.
In recent weeks, all three carmakers have had their debt downgraded by at least one of the major credit rating firms -- prompting speculation that cash shortages may soon precipitate drastic measures.
"Raising liquidity is a concern for all three," said Bruce Clark, senior vice president at debt rating firm Moody's Corp. "It's a fair bet they are looking at a whole menu of options they can pursue."
What those options are is a matter of fierce debate on Wall Street, which is abuzz over possible sales of car brands, hostile takeovers, bankruptcies and even the rumor of a Ford-GM merger. Most analysts calculate that the Big Three have enough cash on hand to weather the rest of the year, but few are so certain about 2009.
Such was the panic Thursday that Chrysler, the No. 3 American carmaker by sales, felt compelled to denounce rumors of possible bankruptcy.
"This rumor is false and without merit whatsoever," a Chrysler spokeswoman said.
Earlier in the week, Chrysler tapped a $2-billion line of credit from its owners, Cerebus Capital Management and German automaker Daimler.
GM Chairman Rick Wagoner sought to reassure investors by saying the company had "a very good, solid funding base" and "a lot of options to fund beyond that."
Analysts say GM would seem well positioned to borrow money. It has numerous attractive assets, has not relied heavily on capital markets to raise money and, as of March 31, had $24 billion in cash and securities on hand, plus credit lines worth $7 billion.
But because of the tightening of credit markets worldwide, GM could be forced to pay high rates for any borrowing, said Robert Schulz, a credit analyst at Standard & Poors.
Ford faces a different problem: It already put up most of its most valuable assets as collateral, including the trademark on its iconic blue oval logo, to secure $25 billion in financing 18 months ago.
That partly explains why Ford recently sold its Jaguar and Land Rover brands to Indian carmaker Tata Motors for $2.3 billion, and why, despite multiple denials from headquarters, rumors of an impending sale of Volvo persist.
GM, too, has said it's willing to liquidate assets. It announced this week that it had hired Citibank to evaluate a possible sale of Hummer, the worst-performing brand in the country this year through May.
With their stock values so low, both Ford and GM would seem to be ripe for a takeover -- especially considering that both still generate more than $170 billion in revenue a year. Although Goldman downgraded its rating of GM stock to "sell," at least nine Wall Street firms still rate it a "hold" or "buy."
Activist investor Kirk Kerkorian took an interest in Ford stock this spring and has since acquired a 6.5% stake in the company, increasing it even after Ford cut its financial outlook for 2009. Still, the Ford family remains the largest holder of the stock, amounting to 40% of voting shares.
"Perhaps [Kerkorian] sees this as an opportunity to be first in line should the family sell out," said Mark Warnsman, an analyst at Calyon Securities.
Filing for bankruptcy protection, most analysts agree, would be a last resort for any of the carmakers, and it is unlikely one would do so in the near term. Moreover, there are questions about whether bankruptcy would do more harm than good, Warnsman said.
The best option, most analysts agree, would be to solve the automakers' woes the old-fashioned way: by finding the black. That won't be easy. Ford is profitable in Europe and GM in Latin America, but none of the Big Three is making money in the U.S. Last year, GM had a record loss of $38.7 billion; Ford lost $2.7 billion.
All three companies have product mixes that heavily favor trucks and SUVs, in contrast to competitors such as Honda Motor Co. Moreover, many of the cars they make are produced at the companies' most costly plants, shaving profit margins even more. Help is on the way in the form of new small cars, but none is due to arrive until late 2009.
All three also signed labor contracts with the United Auto Workers union last fall, but cost savings won't come until 2010.
"They really need to deal with lower sales and having the wrong mix of cars on their lots," S&P's Schulz said. "There's no way to solve either of those right now."