David White

Fast Money Recap - GM and Ford Go to Washington (11/28/08)

Re: Big 3 Automakers

The Japanese automakers are having problems here and in Japan. This is in spite of the fact that they apparently pay much less in wages than US automakers do. The economy is getting worse, especially with regard to durable goods orders (down 6+% in the last report). The automakers situation is likely to get significantly worse over the next 6 months. This means they will be bleeding cash at a rate they probably do not even fully comprehend at this time. The US automakers would have to make major changes in order to present a plan to be profitable in the near term to Congress. Knowing how bureaucracies work (both the automakers management and the UAW) it is extremely unlikely that the US automakers will present a viable plan to Congress. It is much more likely that Congress will again tell them to go back to the drawing board, especially since Congress also wants more fuel efficient vehicles as part of the plan.

The play on automakers is over tomorrow morning at the open. Waiting any longer is simply a risk that is not a percentage play. There is likely less than a 50% chance that Congress will want to approve the automakers suggestions. The automakers' stocks will crash when they are told to go back to the drawing board for a better plan. When this happens, it will be unclear that Congress will be able to act on the automakers second attempt at a plan before the new year. This may mean one or more of them may go into bankruptcy at least temporarily.

I am disappointed that the Fast Money people are being so cavalier with their advice. Good luck to all of those who follow them into Tuesday!