GM news: good, bad, ugly?

[LOL!]

By now you have read about the GM news. I can't tell if the news is good or bad. I am mostly interested if I should get up in time to do some stock trading based on this news or if I should just sleep in. I see that Japan is down about 2%, but that could be because of their own drop in factory output.

Any comments? Will the administration's auto-bailout plans to be announced be received well or poorly by the stock market? Can this be a timing opportunity for buying or selling?

 

[dex]

Pre-Market: Stock Trading Before the Markets Open from CNNMoney.com
The market doesn't seem to have reacted too much so far.
I'm guessing there will be a lot of people against the government having so much influence over the managing of a company.
It should be interesting to see what leverage it used to get him to leave.

Another interesting aspect will be what concessions the unions will make now. So far they haven't made significant ones. If the unions do make real changes that will be the ironic part - a democratic president, elected with union support, ultimately get major concessions. This would not be unusual - remember Bill "I feel your pain" Clinton" eviscerated welfare.

 

[Zathras]

I would definately not buy GM stock unless you are into trading it again within hours (even then I wouldn't).
GM still needs to dump 19 Billion of their 28 Billion in debt held by bondholders.
If they can't get the bondholders on board, GM goes chapter 11 (which is probably the best thing that could happen to them at this point). Which means any common stock is pretty much wiped out.
If they do get the bondholders to swap debt for equity, GM then issues 9-18 Billion in stock. They currently have 750 Million shares. Add 3-9 Billion and that means any common stock you have takes a 75%-90% haircut.
Wait till the government deems them viable or not on March 31st, or at the VERY least, until the deal with bondholders is a done deal.

 

[clifp]

I am happy to see the administration took my advice and is backing the warranties of GM and Chrysler. I think getting rid of Waggoner was long overdue. The Ford and Chrysler CEO haven't been on the job long enough to hold them really responsible.

Now if Obama is really smart he will put GM in Chapter 11 and have Uncle Sam provide DIP financing, which is what I proposed 6 months ago.

 

[DougViages]

The danger here is the issue of government control. This command from the Govt to a private concern is a huge step down the path to socialism. Isn't the GM Board of Directors supposed to do these things?

On the second issue of union concessions, only a real Chapter 11 will force those changes. Too much politics involved here, I fear that this is just a constant downhill path for GM and Chrysler.

Where is John Galt?

 

[ziggy29]

Where is John Galt?

The search feature on this site tells me he's pretty much everywhere...

 

[HFWR]

Though I support holding the auto companies' feet to the fire as a prerequisite for gubment aid, I wonder how many of those bozos in Washington have actually run a company, much less an auto company.

 

[FinanceDude]

The danger here is the issue of government control. This command from the Govt to a private concern is a huge step down the path to socialism. Isn't the GM Board of Directors supposed to do these things?

On the second issue of union concessions, only a real Chapter 11 will force those changes. Too much politics involved here, I fear that this is just a constant downhill path for GM and Chrysler.

Where is John Galt?

I agree, but when a company takes govt money, the govt feels they can now DICTATE how the company is run, unless that company is AIG................

 

[FinanceDude]

Though I support holding the auto companies' feet to the fire as a prerequisite for gubment aid, I wonder how many of those bozos in Washington have actually run a company, much less an auto company.

Very few.......

 

[Independent]

Short term, investors would have preferred that the gov't throw lots of money at GM with no strings attached. That's better for both stockholders and bondholders (not just of GM, but also of suppliers). Better yet, have one string - require concessions from labor (none from investors).

I think that long term we're all better off with the gov't saying "we're not convinced you're being aggressive enough, maybe bankruptcy is the only solution". But the long term isn't driving the market this morning.

 

[ziggy29]

Short term, investors would have preferred that the gov't throw lots of money at GM with no strings attached. That's better for both stockholders and bondholders (not just of GM, but also of suppliers). Better yet, have one string - require concessions from labor (none from investors).

I think that long term we're all better off with the gov't saying "we're not convinced you're being aggressive enough, maybe bankruptcy is the only solution". But the long term isn't driving the market this morning.

What the market hates more than anything is the deepening of uncertainty of the status quo.

I think the market would love to see an "engineered bankruptcy" or clues from Washington that any help to "save" GM must include union concessions on the legacy retiree costs. Without those, there's no resolution, just more of the same that's been fueling the anxiety for a long time now.

 

[Zathras]

I agree, but when a company takes govt money, the govt feels they can now DICTATE how the company is run, unless that company is AIG................

Not only past tense, they are still holding out their hands looking for more money. That is even easier leverage (especially with public opinion of all the bailouts turning really nasty).

 

[FinanceDude]

Not only past tense, they are still holding out their hands looking for more money. That is even easier leverage (especially with public opinion of all the bailouts turning really nasty).

Is it fianlly time to admit the the UAW has bankrupted GM? I can't see the value in saving Chrysler, they're STILL not up to par on quality. Ford is moving in a new direction that seems to be working........

GM is still a mess. The VOLT is not going to save them. The hybrid Malibu is a flop, it barely gets better gas mileage than a regular Malibu.......

 

[Zathras]

Well, I don't think GM ever 'got it' when it came to efficiency in the US market.
Honda did the same thing with a hybrid Acura. Gave it a hybrid engine to get more power. MPG was 1 or 2 higher than the regular Acura. It was a flop as well.

I believe it was Wagoner in 2003 or 2004 that said something to the effect of 'hypbrids are a toy, a passing fad'.
I believe he was also the one saying 'bancruptcy is not an option'.
Perhaps it is a good thing he is gone?

 

[tryan]

Have to give Obama credit for having the kaunas to tell GM 'enough is enough' ... I am sure the "plan" they submitted was just more-of-the-same and they would have back asking for more in short order.

Can't wait to hear about the severence package Wagoner gets.

 

[Running_Man]

Finance Dude,

As written by the PRESIDENTIAL DESIGNEE, the "Viability Report" contains no mention whatsoever of the union and it's contracts being a part of the problem. Only secondarily as a necessity to overcome 6 billion of annual "legacy costs" by increasing volume are mentioned. When the government takes over GM I am sure taking on 6 billion per year on the Federal dime will seem cheap after the trillions to be spent under the current TARP/Resucue plans.

The need to improve the mileage of the car fleet profitably is mentioned in several places as well as how great a company that Toyota Corporation is. The need to meet increase in CAFE is also mentioned. Issues with the Union and forcing concessions are not mentioned.


The "Viability Determination Report" is a monument in my mind to the ridiculousness of this whole process. The first expert mentioned in the report is the "Department of the Treasury". But they also used individuals from industry-leading consulting groups. Hmmmm why no mention of the names, wonder how many union leaders were in that list. Does anyone doubt if Wagoner was politically connected well enough the government would just be bailing him out as needed for the economy and that report would have been written differently by the "PRESIDENTIAL DESIGNEE?".

http://online.wsj.com/public/resources/documents/GM-Viability-Assessment-20090330.pdf

 

[calmloki]

By now you have read about the GM news. I can't tell if the news is good or bad. I am mostly interested if I should get up in time to do some stock trading based on this news or if I should just sleep in. I see that Japan is down about 2%, but that could be because of their own drop in factory output.

Any comments? Will the administration's auto-bailout plans to be announced be received well or poorly by the stock market? Can this be a timing opportunity for buying or selling?

Thanks LOL! - last night my ex-GM service manager honey, loyal as can be, decided that we should bring our GM holdings up to an even 1000 shares. They were up to $3.62 on Friday, quite a bump from the $1.92 per we paid for the last $1000 worth. Had to buy them right now! Since i'm the stock picking monkey who threw $5000 at BofA - three times! - back at $33, $25, and $22 and we're still holding, i couldn't very well argue caution. Put in a market order last night and got up to find GM down $0.70 at $3 - but our order executed at $2.69! WOOHOO! Think i get the lottery or casino happy feel now - the down side i understand just fine.

 

[Zathras]

WOOHOO! Think i get the lottery or casino happy feel now - the down side i understand just fine.

So you understand that the stock will either be worth on 20% (or less) as of the bondholders agreeing to take equity for debt, or worth zero if GM goes through chapter 11?
Or do you see another option?

 

[ziggy29]

So you understand that the stock will either be worth on 20% (or less) as of the bondholders agreeing to take equity for debt, or worth zero if GM goes through chapter 11?
Or do you see another option?

Personally, I don't know it can end well for GM shareholders except as a short-term speculative play. I can't see any long-term options to keep them viable other than bankruptcy. That effectively wipes out stockholders and probably makes bondholders at least partial new owners of the rebuilt GM.

 

[Independent]

Finance Dude,

As written by the PRESIDENTIAL DESIGNEE, the "Viability Report" contains no mention whatsoever of the union and it's contracts being a part of the problem. Only secondarily as a necessity to overcome 6 billion of annual "legacy costs" by increasing volume are mentioned. When the government takes over GM I am sure taking on 6 billion per year on the Federal dime will seem cheap after the trillions to be spent under the current TARP/Resucue plans.

The need to improve the mileage of the car fleet profitably is mentioned in several places as well as how great a company that Toyota Corporation is. The need to meet increase in CAFE is also mentioned. Issues with the Union and forcing concessions are not mentioned.


The "Viability Determination Report" is a monument in my mind to the ridiculousness of this whole process. The first expert mentioned in the report is the "Department of the Treasury". But they also used individuals from industry-leading consulting groups. Hmmmm why no mention of the names, wonder how many union leaders were in that list. Does anyone doubt if Wagoner was politically connected well enough the government would just be bailing him out as needed for the economy and that report would have been written differently by the "PRESIDENTIAL DESIGNEE?".

http://online.wsj.com/public/resources/documents/GM-Viability-Assessment-20090330.pdf

Thanks for the link. I think the report covers a lot in 4 pages.

I can't figure out why you say "issues with the union ,,, are not mentioned". The report says there were "various" requirements in the original loan, at least three of them haven't been met, and this is the reason for turning GM down. The three items are:

(a) Approval of the Labor Modifications (Compensation Reductions, the Severance Rationalization and the Work Rule
Modifications) by the members of the Unions;
(b) Receipt of all necessary approvals of the VEBA Modifications other than regulatory and judicial approvals; provided,
that the Borrower must have filed and be diligently prosecuting applications for any necessary regulatory and judicial
approvals; and​

(c) The commencement of an exchange offer to implement a Bond Exchange.

(a) and (b) both involve concessions from the union workers. I can't ignore (c). If I've got the facts right, the bondholders get $20 billion out of a complete gov't bailout. That's a lot of money, and I think it's entirely appropirate for the gov't to expect the bondholders to take a lot less.

 

[Zathras]

Personally, I don't know it can end well for GM shareholders except as a short-term speculative play. I can't see any long-term options to keep them viable other than bankruptcy. That effectively wipes out stockholders and probably makes bondholders at least partial new owners of the rebuilt GM.

I could see an even more speculative mid term play if you assume that the 80% cut in stock value is already priced in, and that the deal with bondholders will go through AND the economy will recover such that GM starts making a profit.
Then you have the bet the stock will increase in value enough to cover your risk, quickly sell it before gas goes up north of $3/gallon or GM's internal weaknesses rear their ugly heads and the company goes to chapter 11 anyways.

Far too speculative for me, I'd rather put it all on 00 on a roulette wheel.

But I thought I might have missed something?

 

[Dog]

It will be interesting to see how Ford will fare considering they didn't take any bail out money. It would nice to see the company survive and possibly thrive.

 

[ziggy29]

It will be interesting to see how Ford will fare considering they didn't take any bail out money. It would nice to see the company survive and possibly thrive.

There are conflicting schools of thought. One is that GM will gain an unfair competitive advantage for feeding at the public trough which could hurt Ford. The other is that Ford will gain market share for two reasons:

• Consumers could have more confidence in Ford's survival, helping to convince people that warranties will be honored and parts and service will remain more available;
• Potential backlash against companies feeding at the trough which could turn people against purchasing GM and toward buying Ford.

It remains to be seen, I think -- depending on how long this persists and how long the populace continues to carry torches and pitchforks, I could see it either benefiting or hurting Ford. I will confess that personally, because of all this mess, if ANY U.S.-based automaker survives, I do hope it's Ford at this point. As long as their hands stay out of the cookie jar, anyway.

 

[samclem]

Now if Obama is really smart he will put GM in Chapter 11 . . .

The phrase speaks volumes about how far we've come and what is deemed to be the proper role of the executive branch. No one even takes exception when such things are proposed today. There was a time . . .

 

[Independent]

I thought Ch 11 (with the gov't providing DIP financing) was the best option. I read this and wonder how much is negotiating position and how much of it is really drawing a line.

Among challenges the administration faced leading up to this weekend's decision, foremost were the efforts to draw steep concessions from the United Auto Workers union and from the bondholders.

Attempts to solidify deals with the UAW and bondholders were slowed by disagreements by both parties over how exactly the other party needed to budge. The UAW, for instance, insists it already made health-care concessions in 2005 and 2007, and argues that the bondholders have never been asked to concede anything.

"I don't see how the UAW will do anything until they see what the bondholders will give up," one person involved in the negotiations on behalf of the UAW said Sunday.

The bondholders have said that they are willing to make concessions, but they have wanted to see the union make further cuts. The fact GM raised most of the unsecured debt to fund union health-care and pension costs is also seen as a reason why the union needs to take bigger steps.

Obama Outlines Plans for GM, Chrysler - WSJ.com