GM?

[natedogg]

Damn I posted last week thinking that autos might be a good sector considering how battered they've been. Ford and GM have skyrocketed this past week but will they keep it up?

GM's still a crappy company even with Kerkorian involved isn't it?

My guess is that the US automakers can turn around from where they are now. They have lots of advantages not the least of which is the anti-free-trade Congress we now have. They will almost certainly do something stupid like bail out the auto industry.

I'm also quite positive that the courts will rule in GM's favor when they seek to be absovled of their pension obligations, just like happened with Delta(?)....

natedogg

[player24]

Kekorian's $31 per share tender offer is the sole reason the stock has risen in the past week (big short squeeze). The tender places a floor under GM's share price in the near term. And Kerkorian may be able to effect a major resturcturing of the company which could unlock the existing liquidity ($20 billion of cash) and the asset value at GMAC. Stripping GM of liquidity and profitable assets (by distributing this value to shareholders) would be a radical move that would leave the automotive division in a state of insolvency. If you buy GM stock at this price (trading at 15x 2006 Street EPS estimates, average historical PE multiple is 8.3x) you are either betting on a successful Kerkorian resturcturing (although he is claiming that he is a long term investor (at age 87) with no such plans)...or you are betting on dramatic changes in the automotive business, from a cost and volume standpoint.

Unfortunately - GM production capacity represents about 33% of total capacity for the industry, yet the company's market share is about 26%. This seven points of excess capacity coupled with high unionized labor costs results in a cost structure that is high and highly fixed - leaving the company vulnerable to volume swings. The company has been steadily losing volume and market share (mostly to Toyota, Honda and Nissan - companies with low cost, nonunionized labor...good quality, low cost product...and far less reliance on large SUVs and pickups (which are losing share as consumer tastes shift and gasoline prices rise)).

The bottom line (if there is one) is that there are no visible signs that GM (or the US automotive industry) is recovering from its market share decline (and sales remain robust industry wide - what happens in a recession?). GM stock is expensive by historical standards and the recent runup is due to the actions of an unpredictable corporate raider. A government bailout, although unlikely, would be predicated on a sharing of the pain between workers, creditors and stockholders - and stockholders will not fare well (if you are long the stock at 31+, do not hope for this outcome). The only court that can absolve GM of pension obligations is a bankruptcy court - and we all know what happens to stockholders in 99+% of corporate bankruptcies. I'm not sure how to react to the contention that Congress is anti-free-trade (compared to what/whom?)

Now take the money you were going to use to buy the stock and go out and buy a Buick LaCrosse. Like the stock, the Buick sucks...but it will probably still be worth something in three years... [img]/images/graemlins/smile.gif[/img]

[player24]

Bump...just to jump ahead of the Jesus post. Wrong forum.

[parttimepro]

Well said. GM is clearly in a death spiral. Its size and the likelihood of government intervention will probably keep it out of bankruptcy. Ironically, this will prevent it from making the kind of radical restructuring necessary to become competitive. It will continue to lumber on, zombie-like, producing expensively crappy cars and absorbing occasional government handouts.

[adios]

[ QUOTE ]
Its size and the likelihood of government intervention will probably keep it out of bankruptcy.

[/ QUOTE ]

My take is a little different. I think the automaking side of the business can be separated from the more valuable assets, I think we'll see the automaking side go into chapter 11 if for no other reason than to shed the UAW albatross.

[parttimepro]

You could be right, it depends on politics. Either way, it's a bad idea to buy right now for the medium- or long-term.

[scalf]

[img]/images/graemlins/blush.gif[/img]..gm is socialism at its best

hey; maybe you are right;

or maybe you are kirk's long lost grandson..

lol

but gm even loses money at saturn..

they lose money at everything...

when interest rates go up; they are screwed

jmho

gl

[img]/images/graemlins/grin.gif[/img] [img]/images/graemlins/tongue.gif[/img] [img]/images/graemlins/club.gif[/img]

[GeorgeF]

"I'm also quite positive that the courts will rule in GM's favor when they seek to be absovled of their pension obligations, just like happened with Delta(?)...."

This statment has no meaning to an investor. Delta shares have thus far been a bad investment for most people, even if they bought on lows. The bonds are a bit better as they yeild 25% so if delta pays for 4 years you are out of the red.

The thing to remember is that GM wants to keep current management, customers and workers happy. After that bond holders. Then retirees and then stockholders. GM is not thinking about what is best for shareholders, and bankrupcy courts will not even consider the interests of shareholders.

[ACPlayer]

GM convertible debt may be a better way to play a possible restructuring.

[midas]

I've said it before and I'll say it again - GM is not going bankrupt thus no restructuring. If they came close, the government would bail them out. Do you think Kerkorian would be buying stock if he thought they were going under? They need to sell some non-core assets like GMAC (non GM exposure), shake up management and start building cars that people will buy, not the junk they have been pushing on middle America for the past 30 years.