Other Editorials

GM Still Looks Weak

Mary Crane
Monday, June 26, 2006

From Forbes.com

General Motors

Banc of America analyst Ronald A. Tadross said General Motors' tactics to fix its business won't work and advised investors to sell on expected production losses.

"The company's product cycle is at a peak, earnings-per-share quality is weak and the stock is expensive, in our view," Tadross wrote in a report to investors Monday.

"We believe GM management is glossing over the current and future cost of rightsizing the business for the lower share."

GM's suggestion that it might tap into a $4.5 billion secured credit line signals that its $13 billion in cash, as well as assets from its $16 billion in Voluntary Employees Beneficiary Association (VEBA) fund, aren't enough to brace the company against what could be some "serious cash burn" at the end of the year, Tadross said.

Why the cash burn? A possible 8% drop in production in the back half of the year, Tadross forecasted, as GM's production falls in line with the company's negative sales, its product pipeline peaks and as its balance sheet hurts GM's ability to compete.

Once GM's production falls, Tadross said he expects the stock market to have a hard time finding alternative ways for GM to stop the cash burn.

Tadross said GM (nyse: GM - news - people ) was his least favorite stock pick in the auto sector, rated "sell" with a $10 price target.