Time to Collect Your 3.1 Shares of GM
May 27th, 2009 | By Jonas Elmerraji | Category: Featured, Investing Strategies
Whether you knew it or not, you bought shares of General Motors (NYSE: GM) this year. We all did.
With America’s biggest small-cap on the brink of becoming insolvent, Uncle Sam has been quick to step into the driver’s seat, forking over billions of dollars in bridge funding that could entitle the U.S. Treasury Department to as much as 70% of the company. That’s the equivalent today of 3.1 shares of General Motors for each American taxpayer today.
But don’t count your money just yet…
Right now, America’s biggest automaker is facing a shaky future. Today, management announced that talks had fallen through with the company’s bondholders. The bondholders were offered just 10% of the company in exchange for wiping out $27 billion of GM’s debts. They figure that they can do better in bankruptcy court…
It’s now become all but certain that the company that brought us the Hummer H2 and the 14/20 mpg Chevy Suburban will enter bankruptcy court on Monday.
A High Stakes Game
But as poetic as that punishment may seem to millions of fed up Americans, the stakes of a GM bankruptcy are as high as ever. At the end of last year the company employed 252,000 people, not to mention the millions of jobs at GM’s dealers and suppliers.
Those numbers have already been pared down through employee contract buy-outs and forced dealer closures, but the fact remains that the fallout from a GM bankruptcy will be hard-felt, especially in places like Michigan where the auto industry accounts for a huge chunk of the state’s economy.
It will also be tough on investors. After all, they’re the ones that’ll be left holding the bankruptcy bag next week as the world finds out exactly what’s in store for GM. While the company has lost 93% of its value in the last 12 months, the prospect that shareholders could be left with worthless shares makes the stock look expensive still at the $1.22 it’s currently trading at.
Even company employees have lost faith – the GM Employee Stock Fund sold off all of its shares in the company back in April when the stock traded at $1.69.
Certainty for GM
But while much still remains uncertain about the company’s future, some things are still not up for debate. First on that list is GM’s future as a functioning company – like the banks before it, General Motors has been deemed a firm that’s too big to fail. According to the New York Times, “…the government will provide G.M. at least $50 billion to get the company through Chapter 11.”
It’s that payment and others that means “We, the Taxpayers” will get 3.1 shares GM common stock each after the company’s restructuring is complete. Don’t worry, our friends at the Treasury will take care of them for us.
Another certainty is the fact that state ownership of GM will bring about some interesting changes for the automaker. President Obama proved to be an activist shareholder in GM long ago, when he fired then CEO Rick Wagoner and directed the company to convert their debt to stock as part of the restructuring plan. Why shouldn’t we expect the same level of interest when it comes to car models and miles per gallon?
We’ll see how things pan out next week when GM announces its final restructuring plans to the country. Let’s hope we don’t get taken for a ride this time.
Cheers,
Jonas Elmerraji
May 27, 2009
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My gut tells me to throw GM to the dogs of free enterprise. But the other side of the argument is that the workers did not destroy GM, management did. If anything, the unions ought to have had more input.
Bush killed the wrong pig. Late in his term we were told that unless we immediately manifested hundreds of billions of dollars, and gave Paulson total immunity, the system would fall apart. What a crock.
Well, there were and are thousands of banks, real banks, who could have picked up the pieces from “too big to fail” casino banks.
The same does not hold true of GM. There are not thousands of car makers. The pieces and benefits will go offshore. That’s the big diff and that’s why I cannot fathom crying over $27 or 50 billion when we threw hundreds and hundreds of billions at Bush’s Wall Street buddies.
So what if the government takes charge? The government is us (just gotta keep the politicos at bay). So what if we own it? At least hundreds of thousands (and millions up and downstream) jobs stay in America. Good. No, great. And we are educating 300 million Americans in stock concepts. So where’s the problem?
thinking about buying gm at 1.15 what do you think ??