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JPMorgan: Ford, GM May Struggle If Economy Worsens

Analyst says the automakers may not have enough cash in reserve to weather an economic downturn.

NEW YORK (AP) -- JPMorgan said Monday a rally last week of Ford Motor Co. and General Motor Corp.'s shares may or may not mark a trading bottom, and he remains concerned about whether the automakers have enough cash in reserve to weather an economic downturn.
 
Analyst Himanshu Patel said industry checks revealed the minimum level of cash needed is two or three months of supplier payments. Based on those targets, he said required cash for intra-quarter working capital needs at GM is $11 billion, and at Ford about $8 billion.
 
At the end of 2007, gross cash, excluding certain retirement plans, totaled $26.6 billion at GM and $32.7 billion at Ford, he said. These numbers suggest that GM has a ''realistic current cash cushion'' of $16 billion and Ford one of $25 billion.
 
While neither Ford nor GM have any likely near-term stock catalysts, fears of bankruptcy seem ''overblown,'' unless the broader macroeconomic outlook changes and leads to a large, multiyear auto sales slump, Patel said.
 
Yet the two may likely ''take certain measures to bolster liquidity, particularly if the economic backdrop deteriorates further,'' he said.
 
''The liquidity situation is tougher at GM, but Ford also has fewer incremental liquidity enhancing options largely because many of them have already been exercised,'' Patel said in a client note.
Patel currently rates shares of both companies as ''Overweight.''
 
Despite the note, shares of Dearborn, Mich.-based Ford rose 25 cents, or 3.9 percent, to $6.74, and shares of Detroit-based GM rose 40 cents, or 2 percent, to $20.98 in the afternoon trading session.
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