February 21, 2009 at 1:00 am

Shares of GM drop to lowest since '34

DETROIT -- Shares of General Motors Corp. sank to a 74-year low Friday, a fall fueled by a broader market plunge and continued questions about the automaker's viability.

The slide came three days after GM said it could run out of cash next month and requested $16.6 billion in additional federal aid to pay bills, a move that revived calls for GM to file for bankruptcy.

Friday's drop reflects declining investor confidence in GM's restructuring plan and signals concerns about the automaker's long-term survival.

"The lower the price, the market's outlook for the firm is becoming more and more bleak," said Todd Houge, an assistant professor of finance at the University of Iowa.

At one point, GM shares fell 24 percent to $1.52 on Friday, the lowest level since July 26, 1934. The drop briefly sent the company's market capitalization below $1 billion, meaning the 100-year-old firm was worth less than $1 billion based on the value of outstanding shares.

Shares rebounded to close at $1.77, an 11.5 percent drop for a company whose shares have fallen 93 percent in the last year. GM nearly ran out of cash late last year before securing a $13.4 billion federal loan package and on Tuesday the automaker said it needs a total of $30 billion to restructure and become profitable again, up from $18 billion in December.

The larger request and other concerns, including GM's acknowledgment that even more aid might be needed in coming years to meet $18.2 billion in pension obligations, combined to send its share price sliding, experts said.

The decline could have a psychological effect on investors, who might shy away from buying stock or loaning money to GM, and also scare off car buyers.

"Smart consumers hook their wagon to a winner," said Brian Krasicky, director of O'Keefe & Associates, a Bloomfield Hills financial consulting firm and turnaround adviser.

The fall to less than $2 might prevent pension and mutual funds from owning GM stock because some set minimum price requirements, Houge said.

David Sowerby, portfolio manager at Loomis, Sayles & Co. LP in Bloomfield Hills, said the drop in share price reflects a combination of economic factors, including a lack of credit, low consumer confidence and personal income growth and persistent questions about whether GM will be forced into bankruptcy.

The drop likely won't impact ongoing talks between GM and bondholders, Sowerby said. Under the terms of its federal loans, GM is trying to negotiate a complicated deal that would cut its $27 billion in unsecured debt to about $9.2 billion by swapping debt for company stock.

The Associated Press contributed to this report. You can reach Robert Snell at (313) 222-2028 or rsnell@detnews.com">rsnell@detnews.com.