Whither General Motors' Stock?

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 been answering emails and otherwise writing that GM was already bankrupt, just not legally so, and the shares would end 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 of up 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 the line. So maybe they will come around.

But something will happen. You notice the Michigan Congressional delegation said nothing Monday - 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 wait 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 Sam - 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 away - 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.

Comments

[Miken:]

This represents a mulligan for President Obama.

The first time around, while GM was trying to bring stakeholders to the table, the President was out there saying he wasn't going to allow the auto companies to go down. The instant he said that, negotiations were doomed to failure. Every entry level negotiator knows that there has to be the prospect of something very bad looming if the negotiations were to fail.

That's OK, we'll just blame it on the CEO and have a do over. Now, this time, we're really, really serious. No more more kidding around.

I know it's a stretch, but the politicians should just keep their mouths shut about for 60 days if they truly want it to work. If they want to drive the autos into bankruptcy by transparent manipulation they should continue their present course.

Mar 31 11:36 AM

[Mircea:]

Bla....Bla....Blaa....I Did I whrite....But nothing concrete

Mar 31 11:41 AM

[User 386342:]

GM has 610 million shares outstanding with a market cap around $1-2 billion. Initial loan terms stipulate 2/3 of $27 billion in bondholder debt and another $10 billion in VEBA debt be converted to equity. Talk now is minimum 3/4 for the bondholder debt to equity and more concessions on the VEBA payment. 30 billion shares outstanding anyone? Reverse-split at maybe 100 to 1?

At this point we're likely to see a prepack that wipes away the existing 610 million shares, with the issuance of new equity to the bondholders (4/4 debt to equity bond exchange) and the UAW as GM emerges with only government debt on the balance sheet, half of which we might see paid off with a new bond offering down the road, after the first half is paid back.

Mar 31 12:25 PM

[ANDY K:]

Michigan Congressional Delegation???? You mean twiddle dee and twiddle de dum?

Mar 31 02:29 PM

[not so dumb...:]

I won a Cadillac. This is a brand that should never go away. It is as American as The Stars and Stripes. The UAW should give up its unrealistic retire's entitlements so that this vital part of America's shrinking manufactering sector can survive! GM and Ford are an important part of America's economic backbone.

Apr 01 12:40 PM

[henarl:]

"Whither General Motors Stock?" I believe "wither" would be the more apt word.

Apr 01 03:13 PM