Can General Motors Recover?

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Bryan Mitchell / Getty

General Motors shows off the 2009 Saturn Vue Green Line 2 Mode Hybrid during the North American International Auto show in Detroit

Two months before the company's 100th anniversary, General Motors Corp. executives remain defiantly upbeat in the face of a weak economy, terrible sales and Wall Street speculation that the giant automaker could ultimately wind up in bankruptcy court if the slump continues.

GM's stock price dropped below $10 this week to its lowest level in 54 years, down significantly from $43 last fall after the automaker had signed a new four-year labor contract with the United Auto Workers that included significant concessions. JPMorgan said the company has to raise $10 billion in fresh capital in the next several months. Merrill Lynch was even less optimistic. "We believe there is potential downside in the stock below $7 and that bankruptcy is not impossible if the market continues to deteriorate and significant incremental capital is not raised," Merrill Lynch analyst John Murphy wrote in a note to investors.

GM officials dismissed the report from Merrill, with the implication that Merrill — itself desperate for cash, having lost billions in the real estate bust — doesn't have the best financial acumen. "We won't comment on market speculation or the Merrill reports specifically," said GM spokeswoman Renee Rashid-Merem. She said GM is not cash short: "We continue to believe the company has sufficient liquidity and financial flexibility to meet its 2008 funding requirements, despite lower U.S. industry volumes." More than 17,000 blue collar workers dropped off GM's payroll last week as part of a buyout of long-term employees, which should help lower costs.

To balance the bad news, GM executives pointed to the overseas market, where the company is anything but troubled. The company had record sales in Europe during the first half of the year and posted double-digit sales gains in Latin America and China, where the company expects to sell more than a million vehicles again this year, said Mike DiGiovanni, GM's general director of market analysis. And even the bad news had a silverish lining: "We actually picked up market share [In North America] in June," said Mark LaNeve, GM vice president for vehicle sales, service and marketing. Predictions that Toyota would surpass GM in sales during June proved inaccurate, as the rival company suffered an even larger drop in sales than GM.

One of the big issues for auto companies is an adequate supply of hybrids, and GM says it is winning that battle. "Hybrid demand and availability continues to build, and we're seeing really positive momentum with the Chevrolet Tahoe and GMC Yukon 2-mode hybrids," LaNeve added. At the same time, GM is still planning to roll out the Chevrolet Volt, a plug-in electric vehicle that will run on battery power rather than gasoline, in late 2010, despite some skepticism about whether its lithium-ion battery will be ready for the road.

GM also insists it's moving to trim costs and adjust to the new reality created by $4-per-gal. gasoline, including selling its Hummer brand. GM has also suspended design and engineering work on its next generation of pickup trucks and sport-utility vehicles as it waits to see how the market will shake out. LaNeve said in a recent interview with TIME that capital spending was a key reason the Hummer had to go. With the market shifting away from trucks, GM felt it did not have enough resources to support four distinct truck brands, and the Hummer's reputation as a gas-guzzling toy for rich boys couldn't have helped its cause.