GM Generali

By Shawn Langlois

SAN FRANCISCO (Dow Jones) -- General Motors Corp. shares dropped deeper into Great Depression territory Friday, as President Barack Obama gathered his auto task force in a closed-door session a day after the company raised still more bankruptcy concerns.

The reeling Dow component (GM) plunged as much as 32% to $1.27, a level not seen since 1933.

The ominous retreat kicked up more of the bankruptcy chatter that has dogged the stock for months.

GimmeCredit analyst Shelly Lombard said that if GM and its bondholders don't come up with a plan to convert two-thirds of the company's debt into equity, the task force would likely force a bankruptcy rather than push back the March 31 deadline.

"We've rated [GM bonds] underperform since February, but we now believe a bankruptcy is more likely and the potential recovery even harder to determine," she said.

GM issued a statement in which it stood by its position that restructuring its business out of court remains the best solution for all involved.

"As a prudent business measure, the company has analyzed various bankruptcy scenarios," GM said. "However, the company firmly believes an in-court restructuring would carry with it tremendous costs and risks, the most significant being a dramatic deterioration of revenue due to lost sales."

The shares came under pressure a day earlier, as well. GM's auditor, according to a filing, concluded that the company's "recurring losses from operations, stockholders' deficit and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern."

Erich Merkle, an independent auto analyst in Grand Rapids, Mich., said he believes the government will still do whatever it takes to avoid a filing, particularly a move toward Chapter 7 and the disastrous consequences it could bring.

"There would be an economy before a GM liquidation and an economy after," he said. "In the latter, we'd be having this conversation with two cans and a string."