Thoughts On GM

Now that GM has been given until June 1st to come up with an adequate restructuring plan or face a definite bankruptcy filing, does this mean that the Obama Administration has started to take a stronger position with companies that take Government assistance?

Hardly!

Does it mean that the Banks or next? Maybe? Should be!

Maybe the Banks just have better lobbyists?
Give more campaign contributions?

Seriously....

All this means is that General Motors, a company that employees 243,000 workers has until June 1st to figure out something they have not been able to figure out for 20 years. A definite careful prepackaged bankruptcy (Chapter 11) is awaiting GM. The Obama Administration has not given a lifeline to GM, but has given advanced notice that a public Chapter 11 filing is certain. Quite ingenious in the sense that the market dropped badly the day (3/30/09) the news was announced, but quickly regained lost ground as the market was able to diagnose the situation. This type of news dissemination will be the way the Administration takes action the next 6 months or so, basically because it worked. It relayed to the market bad news that needed to be put out, but the way the Administration did it was very market friendly. Everyone knows that GM is finished, that it is no longer a viable company based on its financials. The market needed closure, and this announcement guarantees it.

Its 4Th and long for GM. I never say never, but the odds of GM avoiding bankruptcy is slim. It is highly unlikely that bondholders will agree to reduce $28 Billion in unsecured claims down to $9 Billion via a Equity Conversion which currently has negligible value.
Also the UAW will not agree to further labor concessions without creditors giving in as well. So GM will use these last 60 days to prepare for a bankruptcy filing, while the government has made the decision to back warranties and publicly explain that GM can operate even in the face of a possible filing. GM will emerge eventually from Chapter 11, that is the opinion of the Obama Administration, that is why the market was able to trade back the losses it had accumulated. The Obama Administration is forcing debt holders and the UAW to the concession table in the hope they can iron out their differences.

The U.S. Auto Industry is all about market share, and GM will lose share during this period, unfortunately, the U.S. Auto Business is not a "ZERO SUM GAME". Structurally the business stinks, its highly dependent on free flowing credit, consumer spending trends, employment, GDP revisions, fair labor contracts, and most importantly...capable management, all of which are lacking in today's environment. The U.S. Auto Industry needs to change and adapt, and the impending bankruptcy filing of GM will jump start the process. The way to play this is via Toyota, Nissan, and Honda.

I continue to believe that 1 of the big 3 will be totally extinct going forward. Chrysler will either be bankrupt or a part of Fiat, but the easiest scenario is for GM to file.

The best case scenario is for GM to emerge from bankruptcy in a period when the economy is coming out of its malaise, which will be sometime in late 2010.

In the larger scale, this is a test run for what the administration hopes will bring some stability to the markets, so far its worked. But if it doesn't, look for more of these type of announcements transposed to the banks.