GM’s (GM) stock is racing toward $1 where it can join Citigroup (C) and a number of other famous American companies which could not hold that price point.

Today GM trades at $1.43, and had been down sharply most of the day.  There also are a number of things which could cause the shares to collapse further in the next week.

GM’s auditors expressed their opinion about the company being a “going concern”, but for investors and ratings agencies, that is old news.  GM has been a Chapter 11 candidate since it first went to Washington and said it did not have the money to make it through last year.

During the last two days there have been rumors that GM’s management and board may favor a pre-packaged bankruptcy with government money coming in to support the new company once a court rids it of many of its debt obligations and agreements with the UAW. If the company announces that action, the common stock will be wiped out, and so will most if not all of the owners of the preferred.

Another avenue to court would be if some of GM’s suppliers who have not been paid in months decided to push GM into a liquidation. If that happens, the car company would probably file for Chapter 11 on its own rather than have suppliers take the first step in an attempt to get to the front of any line the court might make to make payments on the GM”s obligations.

The most likely circumstance for a sharp drop in the stock is the federal government putting another $20 billion into GM in the hopes of keeping it on life support until auto demand  rebounds. This would almost certainly not include satisfactory negotiations with the UAW and creditors, but the limited concessions the company probably will get from these parties would cut operating costs and the firm’s break-even point. If the government makes the decision to do what it did with Citigroup (C) and take equity in the company, GM shareholders would face substantial dilution.

GM’s stock is going to fall below $1 and it may happen as early as next week.

Douglas A. McIntyre

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