DETROIT (AP) -- A bailout of the auto industry is likely, according to an analyst, but the extra time U.S. House and Senate leaders are taking could lead to liquidity issues in the near-term.
Citi Investment Research analyst Itay Michaeli said in a research note Friday that the delay in Washington leaves General Motors Corp. vulnerable to "shocks" over the next two weeks.
General Motors is making more production cuts at several factories, according to people briefed on the discussions. The people did not want to be identified because the announcements were still being made Friday morning. The extent of the cuts was unknown.
"Investors will continue monitoring day-to-day automaker liquidity positions for any signs of erosion, particularly with regards to working capital and supply chain," he said. "Failure to achieve this could increase liquidity risks, especially with news reports indicating that a few suppliers are debating on switching to cash on delivery terms."
In a separate note, Andrew Parmentier, an analyst at Friedman, Billings, Ramsey, said the extra time allows for compromise.
"Given the fact that we continue to believe that a majority of members appreciate the systemic risk presented to the broader economy if a major automaker fails and enters into liquidation, we expect Congress to use bridge funding as leverage in 2009 to actually implement restructuring proposals," he said.
Shares of GM fell 16 cents, or 5.5 percent, to $2.72 in morning trading. Shares of Ford Motor Co. rose 11 cents, or 8 percent, to $1.51.
