Whither General Motors?
If you take the "h" - for help - out of whither, you get wither - and that is what would happen to GM without massive help. And that help has now been put on a 60 day leash - something its board and creditors should have done a generation ago.
For almost two years I have answering emails and otherwise writing that GM was already bankrupt, just not legally so, and the shares would en up worthless. I am writing this today for the same reason - "is GM a buy" is the common headline for an email this morning. No - the price of the stock is now a put or call on the company, depending on your view.
The bulls see the departure of Rick "Management by Valium" Wagoner as a positive; the bears see no way out. Give this one to the bears - the auto industry is in for a five to ten year trough due to tightening credit standards, a deep Great Recession and a combination of the two creating a shift in consumer discretionary spending from "want" to "need." And as auto sales get stuck in neutral, GM will struggle mightily long term. The question for the stock, right now, is how much will it struggle short term? Will the bond holders relent? Will the unions give away a good deal of health retirement benefits for equity that may end up worthless?
First, the bond holders - they may cave but only a handful who would rather take the hit in bankruptcy and move on could derail the proposed swap if p to two thirds of debt for equity. But all the big guys have to live with each other when this is over so I would say the odds are heavily in favor of a successful negotiation. Next, the union - you would think it almost impossible the union would tank the deal with Uncle Sam to secure a right virtually no other working group in the US has - cheap, high quality medical insurance for erstwhile retirees long before they reach the age qualifying them for Medicare. That is a better deal than virtually all working Americans. If they balk, and the company goes into bankruptcy, they get nothing - they are on line. So maybe they will come around.
But something will happen. You notice the Michigan Congressional delegation said nothing yesterday - a true indicator this is for real and Obama will put GM and Chrysler into bankruptcy if things don't happen.
What does this mean for the stock? This is as much a guess as anything I have written in a long time, but I think you can wit for a long time for the stock to slide - I would not play the short side given that negotiations can end, successfully, at any time - and if the stock goes way down into pennies, it may be a reasonably priced call - a trade, not an investment. As an investment, the value of the company long term depends on how much debt they shed - including debt to Uncle Same - and how many operations and dealers they can lose quickly and without too much damage to their balance sheet, or what is left of it.
That being said, Obama did say that GM and the auto industry are not going sway - a stake in the ground - and if the stock goes down to pennies, in or out of bankruptcy (some bankrupt company shares actually survive a bankruptcy, long story that), and the restructuring looks solid, then it may be a great investment. What would look good? No more excess wages or retiree health benefits - and these are mostly gone anyway after 2010; just Chevy and Cadillac, no Saab, no Hummer, no GMC, no Pontiac, no Buick; a new board of directors; and manageable debt.
By the way - I own three Chevy SUVs, a Tahoe and two Trail Blazers, great cars. I hope the rumors are true that GM will stick with Chevy and Cadillac and ditch the rest, I have always wanted a Caddie.
