Merrill Lynch downgrades GM

General Motors will need to raise about $15 billion in cash to shore up liquidity and bankruptcy is "not impossible" if the U.S. auto market continues to slump, Merrill Lynch said on Wednesday.

Merrill Lynch analyst John Murphy said in a research note he cut GM to "underperform" from "buy" and lowered his price target for the largest U.S. automaker to $7.

GM shares fell Wednesday to as low as 10.80 on the report. As of 10:50 a.m. EDT, shares of GM were trading at 11.04, down 71 cents, or 6.0 percent.

The downgrade comes one day after GM said that June sales fell 18.5 percent from the same month a year ago. Despite the decline, GM shares closed up on Tuesday. Investors and analysts expected worse, with some predicting Toyota would pass GM in sales for the month.

For the first half of 2008, GM's U.S. sales totaled 1,604,942, down 16.5 percent from last year's 1,922,762.

Murphy also lowered his forecast for 2008 U.S. industry-wide light vehicle sales for the third time this year and said the recent drastic decline in sales would likely to continue through 2009.

He expects 14.3 million U.S. auto sales this year and 14 million units for next year. That compares with 16.15 million units in 2007.

Although analysts have said GM will need to raise capital to cover continued losses before 2010, $15 billion is a higher estimate than any other analysts have suggested.

"The recent extreme deterioration in volume and mix is driving much higher cash burn and eroding GM's cash position," Murphy said. "We believe $15 billion is necessary because there is downside risk to our current estimates and a greater cushion is essential."

Murphy said a decline of 1 million vehicles in annual U.S. auto sales equates to about $3 billion in cash burn.

Any capital GM raises has the potential to dilute equity if it's done through convertible offering, one of the possibilities for the automaker.

Volkswagen Polo

VW supermini set to get a lot more stylish thanks to Scirocco inspired design.

The Polo is getting a ‘fresher’ flavour! VW’s fifth-generation supermini will go on sale next year with a more upmarket look – and a front end which has been given ‘the Scirocco treatment’.

The car’s nose reflects the styling of VW’s sleek coupé – and inside, there is a classier cabin. A range of new engines includes hi-tech, low-emission diesels and super-turbo petrol powerplants.

As you can see from our pictures, produced using insider information, the Polo draws on the next Golf and Scirocco, dropping the large chrome grille seen on recent VWs for a simpler design with twin horizontal air intakes and angled headlights. It’s a cleaner look all-round, with uncluttered flanks, neat tail-lamps and a purposeful stance.

Under the skin, the Polo gets the new PQ25 small car platform – first used by the latest SEAT Ibiza. This means a bigger cabin, even though the dimensions are similar to the current model’s.

Quality will improve, as VW bids to address criticism over falling standards. It promises the Polo will be the best-built car in its class, with a Scirocco-style dash and soft-touch materials.

The generous kit tally will include an MP3 player input and Bluetooth connectivity on most models. Plus, the Polo could get the same sat-nav docking port as the Ibiza – this allows portable, hand-held units to be plugged into the dash.

While the car is unlikely to match the likes of Ford’s next Fiesta for driver fun, the steering will be improved and the ride made more compliant. Engine highlights will include 1.4 and 1.6-litre FSI direct-injection petrol units, plus new TDI turbodiesels.

The Polo will also make use of VW’s 1.4-litre supercharged and turbocharged TSI motor, available in a 138bhp ‘warm hatch’ and a 168bhp GTI variant. There will be a new Bluemotion model, too – this promises to emit less than 100g/km of CO2 and return 75mpg economy.

The firm’s seven-speed DSG twin-clutch box should appear as an option throughout the range. As well as three and five-doors, there will be a coupé-cabrio, inspired by the Karmann-built drop-top seen at 2007’s Frankfurt Motor Show.

In addition, buyers get the option of a four-wheel-drive SUV variant to replace the Dune – as we revealed in Issue 1,018 – and a compact MPV. These models won’t appear until at least 2010, while the hatch arrives next year, starting from around £9,000.

In a related story, VW has revealed more about its future by unveiling its first-ever plug-in hybrid. The Golf-based Twin Drive can run for up to 30 miles solely on battery power thanks to an 82bhp electric motor. When it runs out of energy, a 122bhp 2.0-litre turbodiesel takes over.

It gets stop-start technology, regenerative braking and hits a top speed of about 75mph. Energy comes from lithium-ion batteries that can be plugged into a household socket.

While there are currently no plans to put the Twin Drive into production, some of its features are set to debut on VW models within the next two years.