Between the credit markets and consumer spending, GM (GM) is caught in a vise. The car company needs more money and Congress seems less inclined with each passing day to want to hand out more taxpayer cash.

Because GM’s sales may not recover for two years and its access to credit is limited, the shares could easily move below $5 before the end of the year. They trade at $10.60 now.

GM recently drew down $3.5 billion on one of its lines of credit. The company’s treasurer said that would bolster liquidity "at a time when capital markets have become more challenging." In other words, GM’s access to the credit markets is all but gone.

Aside from weak sales in the US, which is only likely to produce a total of 14 million vehicles sales in 2008 among all of the car companies, GM sees a "risk of recession in Western Europe," with auto sales there expected to be about 1 million vehicles down from 2007 levels, according to Reuters.

GM has to face the fact that year-over-year vehicle sales are poor in China, India, and Russia, which were markets critical to improving overseas revenue.

It is easy to say that if GM and its US peers can get access to government loan guarantees to cover $50 billion in plant upgrades that shareholders will out of harm’s way. But, now that Congress has a taste of the idea that it should take equity in companies that taxpayers help, it may want to own a part of GM. That, and falling revenue, leave GM with almost no options for protecting common shareholders from significant dilution.

Douglas A. McIntyre

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