In the wake of poor June sales figures, rumors of impending bankruptcy for General Motors are gaining traction.  The rumors began with speculation by television investment guru Jim Cramer, then grew as a Merrill Lynch analyst called them realistic.  Skeptics remain, however, and GM's future is far from clear.

Reuters reports, "General Motors Corp will need to raise as much as $15 billion in cash to shore up liquidity and bankruptcy is 'not impossible' if the U.S. auto market continues to slump," according to the Merrill Lynch analysis.  "Other analysts have suggested GM, whose shares fell to a new 54-year low on Wednesday, needs to raise funds to ride out the downturn in the U.S. auto market through 2009."

The London Times notes, "The warning by John Murphy, a Merrill Lynch analyst, follows an 18 per cent fall in GM’s sales last month and a cut in its planned production for the current quarter. The note from Mr. Murphy said: 'Bankruptcy is not impossible if the market continues to deteriorate and significant incremental capital is not raised.'" 

CNN Money adds, "A GM spokeswoman declined to comment on Merrill's report."

MSNBC, however, cautions, "Even though big is no longer beautiful for American car consumers, automotive analysts are skeptical that GM will be forced into bankruptcy any time soon.  'It’s not even a possibility in the short term,' said Jesse Toprak, executive director of industry analysis at automotive Web site Edmunds.com."    Other analysts ave said "that GM is not in any near-term danger and has enough cash to stay solvent at least through the end of the year and probably far beyond."

No matter which side is right, the company speculation has contributed to a tremendous drop in GM's stock value.  The Detroit Free Press notes, "General Motors Corp. stock closed below $10 per share Wednesday -- its lowest level since Dwight Eisenhower was president, power brakes were new and the Bel Air was the automaker's hot new car." 

Bankruptcy might not be a death knell for the automaker.  In theory, the move "could make it easier for GM to shrink its brand and dealer network to the size it truly needs in North America."  But the company "would have to worry that customers would stop buying its products for fear parts and service wouldn't be available or that the company wouldn't survive."

Still, the Free-Press notes, the automaker "continues to forecast that auto sales will improve slightly by year's end and in 2009."  If that projection proves optimistic,   Merrill Lynch's warning could prove correct.

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