• by Karl Greenberg , October 9, 2008

As go sales, so goes market cap. Both General Motors and Ford have seen their stock share prices drop like tire irons in the past month--and with it goes their ability to raise cash.

Ford's stock has dropped from $5.20 late last month to Thursday's low of $1.55 per share, giving them total market capitalization of less than $6 billion. General Motors has dropped from a high of around $23 per share in mid-April to $10 late last month, and now $5.83 per share Thursday--its lowest in 58 years--leaving it with a market capitalization of $3.25 billion.

Adolfo Laurenti, senior economist at Chicago-based Mesirow Financial, says there are two problems for automakers, one on the real side--the soft auto market as a consequence of the economic slowdown--and another on the financial side, where companies are having trouble reassuring investors that their fundamentals are strong enough to support short-term loans.

"We have seen issuance of commercial and corporate bonds to GE and AT&T, but the cost is going up and for companies that have a less than solid balance sheet, it's extremely tough to make a compelling case that they will survive and stay in business," says Laurenti.

Congress last week approved $25 billion to fund Big Three R&D, and both Ford and GM have raised cash in recent years through restructuring. Ford in 2006 put its plants, office buildings, legal and trademark and other stakes for collateral to raise $18 billion and get extended credit; GM reportedly has $20 billion in assets.

Says Laurenti: "The capital crunch is mostly in short-term paper, globally, but in a crisis--especially one driven by emotional response--cash is king."

Art Spinella at Bandon, Ore.-based CNW Marketing Research doesn't see why GM and Ford marketing budgets would get slashed. "There is no choice; they have to market," he says. "They will take the money from somewhere else--probably product development, which is unfortunate; but you can only cut back on white-collar and plants so much."

The companies have already made big efforts to control costs, with GM in the midst of a $10 billion restructuring announced in July that includes closing four plants and cutting white-collar expenses by 20%.

Also, General Motors has pulled out of its ad buy during broadcast of the Oscars--replaced by Hyundai Motor--as well as a traditional big-spend event, Super Bowl XLIII next February.

Laurenti says the companies don't have much wiggle room. "They have become much leaner over the past few years. The real challenge is short-term borrowing. And we are running out of time because these corporations can move away from short-term financing for a few days--but the longer this goes on, the harder it is for companies to postpone payments," he says.

In coming months, General Motors plans to launch Chevy Camaro, the Chevy Orlando crossover and Cruz compact. The Volt gas/electric car will also be coming down the pike as a 2010 model. Ford's next-generation F-150 pickup has already begun shipping. The next-gen Mustang comes next year, as do the Fiesta compact and a car based on the Flex crossover.

"Pulling out of the Super Bowl is one way to save money," notes Spinella. "GM has historically done millions of dollars of marketing there. The problem is that without advertising there is no market."

He says the companies are likely to compensate with more thrifty means of getting product exposure--such as product placement, which both Dodge and Ford have been focusing on of late, with the former getting placement for the Ram pickup on "Sara Connor" and Ford negotiating its Mustang as the star vehicle for "Knight Rider."

Laurenti says the market may take a more salubrious turn today or Monday with the settlement for buyers of about $400 billion of protection on Lehman Brothers' debt. "Hopefully, by Monday they will extend commercial credit, and that should help money market funds and restore normal conditions."