GM Bankruptcy: Who Stands to Gain

The huge General Motors (GM) bankruptcy is the best of several bad options for America’s biggest automaker. By allowing the company to shed debt, unload its weakest assets and rapidly streamline, the Chapter 11 filing allows GM to stay in business, become competitive once again and someday return to profitability.

But it also imposes pain on millions who cast their lot with GM over the years. Stockholders will lose virtually the entire value of their holdings. Some bondholders, like big banks and other investing firms, will lose a portion of their investment. Others, like retirees and families who bought GM bonds thinking they’d be a safe fixed-income investment, could lose a lot more.

The bankruptcy also gives several GM competitors a boost. Here’s who stands to gain the most (not including the bankruptcy lawyers):

Ford (F). It’s got financial problems of its own, but GM’s crosstown rival looks like it may be able to solve them without declaring bankruptcy or asking for a bailout. That puts Ford at the top of a troubled domestic heap. “Ford’s in a good position,” says Craig Cather, CEO of forecasting firm CSM Worldwide. “Anybody who wants to buy American would be likely to have more confidence in Ford than in GM or Chrysler.”

CSM predicts that Ford’s U.S. market share, about 16 percent now, could rise to nearly 19 percent by 2015. With overall industry sales expected to rebound nicely by then, a few extra points of share could push Ford’s overall U.S. sales from about 1.5 million this year to 3 million by 2015. That would be a huge gain almost certain to propel Ford past GM as the biggest U.S. automaker.

Chrysler, the other domestic automaker, probably won’t benefit from GM’s woes. Even though it will emerge from bankruptcy sooner than GM, Chrysler still has a weak product portfolio, and new vehicles from partner Fiat won’t arrive for a couple of years at least. CSM predicts Chrysler’s U.S. market share will dwindle from about 11 percent this year to a mere three percent by 2012.

Toyota (TM). Japan’s biggest automaker is losing money, too (recurring theme: the car industry is a really lousy business right now) but it’s not in dire straits like its American counterparts. And Toyota’s steady growth in the U.S. should continue. With GM getting smaller and Ford moving carefully for awhile, CSM’s projections show Toyota edging out the two American carmakers to become the top seller of cars in the U.S. by 2011. If gas prices spike unexpectedly, Toyota could grow faster, thanks to its pole position in high-mileage hybrids.

Hyundai (HYMLF.PK) and Kia. Jack Nerad of car-research site kbb.com says that bargain-hunters concerned mostly about price tend to buy either domestics or Korean-made vehicles, since Japanese and European brands tend to be a bit more expensive. With GM and Chrysler looking shaky, “the Korean brands are likely winners,” says Nerad. Both brands have been on the rise anyway, thanks to big quality improvements, base models that include a generous set of features, and surprise hits like the luxurious Hyundai Genesis.

Imported minicars. They could come from Korea or China or India, but the odds are rising that more cheap, small imports will make it into U.S. showrooms. One possible entry point is Saturn, the money-losing division that GM plans to sell. With nearly 400 modern showrooms and a recognized brand name, Saturn could offer a foreign-based carmaker a ready-made retail network in the United States. Penske Automotive Group, one possible buyer, might try to sell cheap Korean cars as Saturns.

General Motors. The biggest beneficiary of the GM bankruptcy may be GM itself. “They’re going to be in a good position once they’re out of bankruptcy,” predicts Gary Dilts of J.D. Power & Associates. “GM has a pretty good product plan, and they’re leaving 10 years of debt on the side of the road.” The most important things for GM are minimizing the damage to its brand image, erasing doubts in car buyers’ minds, and detaching the surviving divisions—Chevrolet, Cadillac, Buick and GMC—from the troubled parts of the company, which could wind through bankruptcy for months. If it does that, GM could bounce back smartly by 2011. Call it a counterconventional bet.

Disclosure: no positions

Comments

[Hershey:]

Have no fear. The UAW will rise again, demand outrageous saleries and benifits and ruin GM, Ford, & Chrysler.

Jun 01 10:35 AM

[Mad Hedge F...:]

Only the Japanese car makers. The imminent demise of General Motors (GM) will be a nail in the coffin for the commercial real estate market, which I believe will be the financial crisis of 2009. Some 2,000 dealers are being axed, dumping hundreds of millions of square feet on to a market that least wants it. These were the guys who sponsored the local baseball team and Girl Scout cookie sales, and their absence will rip the hearts out of hundreds of American communities. Much of this is prime space, near dense populations, with great frontage, adjacent retail space, completed site work, mitigated environmental work, and already zoned for commercial use. Some might get turned into mini malls, but I’m afraid more will end up as indoor climbing walls and paintball battlefields. Commercial real estate sales are off 73% this year, while vacancies have catapulted to 16.7%. Banks have seized 464 properties so far in 2009, including $7 billion worth in March alone, and thousands more are on the brink.

Jun 01 10:44 AM

[Louis Ramires:]

What surprises me is that all this seems to be happening now, but if you look back on the past you could see it coming. Many companies where laying off if not Firing their employees. Why now? could it be because of the new Administration in office.


On Jun 01 10:35 AM Hershey wrote:

> Have no fear. The UAW will rise again, demand outrageous saleries
> and benifits and ruin GM, Ford, & Chrysler.

Jun 01 10:53 AM

[Wadhamite:]

Southeast Asia will gain. America will lose. Who really doubts that?
Washington has no money tree. All those billions of ill-spent dollars will need to be repaid. There will be no return on that repayment. It's just as bad as fighting wars, except fewer dead people. But people need cars to drive . . . and Asia will produce them with one-third of the world's population waiting for the opportunity to build and sell them. America's day is over, and Asia's day is brightening. In the long run, justice runs its course. (And, though I wish financially-responsible Ford Motor well, they remain the best of a very bad lot.)

Jun 01 11:35 AM

[dybydx:]

well lets be clear about 1 thing. GM Asia and GM EU is doing fine. so yes, GM products CAN make money.

but... GM Asia/EU doesnt sell V8's like GM NA.

Jun 01 01:25 PM

[dfalter:]

On Jun 01 01:25 PM dybydx wrote:
> well lets be clear about 1 thing. GM Asia and GM EU is doing fine.
> so yes, GM products CAN make money.
>
> but... GM Asia/EU doesnt sell V8's like GM NA.
GM EU ceased to be a part of GM today - with only a minority share holding remaining. :)

Jun 01 03:10 PM

[annalisa:]

This is Annalisa Bluhm, i'm w/ GM.
I wanted to compliment you, as always, on a very thoughtful piece. Through the 363 process, the New GM will focus on the customer through 4 core brands. Today's filing will allow us to focus on solid design and customer service to compete domestically and globally.

For further reading, I the following blog post from The Atlantic really showcases how current auto sales are at unsustainable lows. business.theatlantic.c...

As always, truly enjoy the debate and discussion!!

Jun 01 05:01 PM

[Bigwoody:]

30 year retiree of the GM. corporation. Did My time. Got my 16000 a year pension. Thought I was safe.

No buyout money, no golden parchute. Expected pension and health care to be safe. It is not.
Made a decent living wge lst was about 70 thousand a year. Not the 75.00 an hour as reported by the news media.

Saw problems coming but to allow foreign products assembled in There is no difference in price of a Dodge Ram pickup made is Mexico than one made here.
Our trade agreements have caused this recession here and lower-middle class families have suffered.

Jun 01 11:33 PM

[henarl:]

A big percentage of American car buyers is now so pissed off at GM and the UAW over this bailout/phony bankruptcy that they will need to change their name if they expect to be selling cars here in the U.S.A.
Something Japanese or German sounding ought to work.

Jun 02 03:08 PM