GM Woes A Warning To All Automakers

It seems like the sky is always falling somewhere on Wall Street. This week, it just happens to be on automakers.

Here's the meat: bankruptcy for General Motors (NYSE:GM) probably won't happen as long as the company can raise a few bucks - 10 or 15 billion of them.

On July 2, General Motors nosedived more than 13%, after Merrill Lynch analyst John Murphy downgraded the stock to 'Underperform' from 'Buy', while also penning the words "bankruptcy is not impossible". Right now GM is sitting on enough cash to weather around 18 months of operations, though it will likely need to raise money to complete restructuring.

The next day, JPMorgan analyst Himanshu Patel said General Motors is "not in danger of an imminent bankruptcy", according to the Associated Press. The analyst call came just one day after General Motors hit half-century lows on fears that the company could soon be filing for Chapter 11. (For more on analysts and how their words influence the markets, read Analyst Forecasts Spell Disaster For Some Stocks.)

Restructuring the Whole
During a time when consumers are worried sick about rising gasoline prices, automakers are feeling their pain - through sales.

Some automakers are being proactive by cutting out larger model cars. Consumers are demanding smaller, more fuel-efficient and cheaper autos. Case in point, on Monday, the Associated Press reported, "General Motors Corp. may get rid of some brands, speed the introduction of small cars from other markets and make further white-collar job cuts as it tries to deal with a shrinking U.S. auto market." Where there's fat, there's room to trim, even if it means jobs.

There's even more to the story. Beyond simply cutting costs and looking into expediting smaller cars to production, automakers are also threatening to take the fight to court. The Wall Street Journal reported select automakers could be threatening legal battles against steelmakers, during a time when resource prices are through the roof. It's no secret that General Motors and Ford (NYSE:F) are in the midst of renegotiating steel contracts with companies like AK Steel Holding (NYSE:AKS).

Mergers Abound from Abroad?
There could be one more card to be played. Carlos Ghosn, the CEO of French automaker Renault and Japan's Nissan (Nasdaq:NSANY), said the present debacle could give birth to a new wave a deals and mergers within the industry.

European automakers are also suffering, as the euro continues to travel close to all-time highs. Last Thursday, the European Central Bank raised rates 25-basis points, in an effort to fight short-term inflation. The Euro Area June CPI showed inflation at 3.9%, far from the 2% target rate.

The problem is that, although increasing rates "seems" like a good solution to short-term inflation, there's another paradigm to consider. Typically when a country raises rates, the currency also ascends as funds begin buying, seeking the higher interest rate.

Since last Thursday, contrary to logic, the euro has sold off, even though the euro/U.S. dollar (EUR/USD) interest rate differential now stands at 2.25%. At the end of the day though, the euro could easily find buying support on pullbacks, as larger players attempt to step into capture the higher interest rates. The ECB's action could keep the euro at elevated levels, something that will continue to make life difficult for European carmakers, which in turn could also add even more stigma to future deals between international companies. (To learn how central banks can influence inflation, read Getting To Know The Major Central Banks.)

All of the aforementioned aside, the real deal here is that automakers are truly entering the beginning stages of a "renaissance", where only one thing is certain for the future: evolve or die.