Re: GM?
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]
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