GM: "bankruptcy protection is not an option"
The beating General Motors and Ford took on Wall St. yesterday has people loosely throwing around the word "bankruptcy" this morning. GM made its position clear in a statement just released (read in full after the jump) that "bankruptcy protection is not an option." It's true that both automakers are in a bad way after yesterday's sell off. Shares of GM ended the day at 4.76, which gave the giant U.S. automaker a market capitalization (cost of a single share times the number of shares outstanding) of less than $3 billion, while Ford shares closed at just 2.08 to give the Blue Oval a market cap of $4.7 billion. Further adding fuel to the fire is speculation that the debt rating of each automaker may slip further into junk status. But how real a prospect is bankruptcy for these two iconic automakers? Though some consider the prospect a real, if almost inevitable, possibility, the reality is that neither GM nor Ford is likely to voluntarily enter Chapter 11 anytime soon. For one, both companies still have billions of dollars of cash on hand that should last them well into 2009, despite the fact they're burning through their reserves at an increasingly quicker pace. They also have still have untapped lines of credit and assets to unload. Ford has sold off a number of its brands like Aston Martin, Jaguar and Land Rover, while GM is seeking buyers for HUMMER and its medium-duty truck business.
But the real obstacle to bankruptcy is the position that these two companies hold in the fabric of American life, which is both material and emotional. Combined they employ hundreds of thousands of people and indirectly are responsible for many times more. They're also more near and dear to our hearts than big investment banks on Wall St., so politicians would likely step in before it was too late. No one can predict the future, and the markets seem to be stuck in a self-perpetuating downward spiral at the moment, but that doesn't mean we should listen to alarmists on TV looking for higher ratings.
[Source: LA Times, General Motors]
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Statement from General Motors
"Clearly we face unprecedented challenges related to uncertainty in the financial markets globally and weakening economic fundamentals in many key markets. But bankruptcy protection is not an option GM is considering. Bankruptcy would not be in the interests of our employees, stockholders, suppliers or customers and we believe speculation about a possible filing is exaggerated and unconstructive."
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Reader Comments (Page 1 of 3)
TJ 11:41AM (10/10/2008)
stock price /= cash on hand.
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Nightcrawler 11:44AM (10/10/2008)
I guess it proves how ignorant I am about the financial world that when I see GM and Ford under $5 a share my first reaction is "Wow, at that price it has to be a good long term investment, doesn't it?"
My mind just can't be made to believe these stocks might be worth even less in 5 or 10 years. It must be because I'm so used to Fords and GMs being such a large part of the traffic on the road, I assume they always will be around in the future too. And any big company staying in business long term has to worth more than $5 a share, right?
But since I know what I don't know, I'm not likely to act on that impression.
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Paul 12:23PM (10/10/2008)
They will not be worth any less in 5 years than they are today - both Ford and GM are REALLY good investments... soon... I say soon because they probably will decrease in value in the very near term (next ten days) but you can easily predict a 300% increase on them in the next 18 months without them being overvalued.
Gregg 12:23PM (10/10/2008)
Lehman Brothers was founded in 1850, and now suddenly poof is gone. Multi-billion dollar firm to nothing. I wouldn't bet on anything right now. Short sellers are adding to the carnage of course. And when they say GM shares haven't been this low in almost 60 years, remember that it means they have actually never been anywhere near this low in history. $5 was a lot more money 50 years ago than it is now. A LOT more.
Paul 12:26PM (10/10/2008)
Lehman was not a manufacture of anything, you can't make that comparison at all.
Randy 12:56AM (10/14/2008)
@paul
I agree! I'm buying Ford stock!
Think about this!
Not many small cars in US market! Everyone else does! They intro their handful of models under different names and brands in the proper way (without rebadging) and they take market share! Who loses the market share? Everyone else! Including GM! So IMO GM is a tad less of an investment! It's a no brainer IMO!
I'm doing it! I'm waiting only to see what consumer spending for the holidays is like. Then I'm pouncing on Ford Stock!
j 11:43AM (10/10/2008)
Not to be a cynic but I'm surprised they lasted this long in the first place.
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dan spalinger 11:47AM (10/10/2008)
Bankruptcy protection may not be an option in their minds because they know the government will step in and nationalize both themselves and Ford in the near future as a way to "protect the American worker"....Count on it...
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MoonRover 11:48AM (10/10/2008)
At that price GM is waiting to make someone rich, a smart investor could make a fortune with GM.
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DesiAuto 12:27PM (10/10/2008)
Do not trust words coming out of the mouth of an American CEO, especially the automotive and financial ones.
I won't be surprised at all if GM goes bankrupt in few weeks.
John 1:03PM (10/10/2008)
"Do not trust words coming out of the mouth of an American CEO"
So are you saying all Americans are criminals?
What a jackass statement.
big j 1:30PM (10/10/2008)
Not all Americans are CEO's.
BrianFL 11:49AM (10/10/2008)
I am a firm believer that GM will recover once the market turns around. Remember GM almost broke even a year ago. But when the housing market crashed, fuel prices surged and the Wall Street meltdown this year just really through them back off course.
Although I fear a long revcovery time for our economy. Wages have decreased or stayed stagnet and job security for loyal employees have dissapeared. Remember our whole economy is consumer driven and dependent on cash flowing through it. Wages in all industries really need to go up to meet inflation and increase buying power for Americans for this to happen.
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Mike 12:00PM (10/10/2008)
Almost broke even? Companies are supposed to make profits aren't they Billy Bob? And where is the money for these higher wages you advocate going to come from? The US government? It seems to be writing a lot of checks (cheques actually, but I digress) recently. But hey, tack another 0 on to the national debt - after all, zeros don't mean nothin', do they?
BrianFL 12:34PM (10/10/2008)
Hey Mike.
Not all companies in America are doing bad. Think about it this way: about 85% of companies that have been around the last 15 years have grown alot. Yet the wages have stayed the same or barely gone up. We are also more efficient than ever before. We use computers and cutting edge technology to become more effiencient to reduce excess employees and over lapping jobs while squeezing more work out of salaried employees. So let me ask you this: Where has all the money gone from this growth? Answer: CEOs and upper management has taken it all. Mostly in the form of bonuses. In the 70s CEOs made about 30 times as much as the average employees there. Now it has rose to over 300 times. Thats where all of peoples wages have gone.
Jake B 2:01PM (10/10/2008)
Why not tack another two trillion on the debt. Then take out another trillion to double our air force and navy strength. Then tell the world to try and come get the money!
J M C 3 11:53AM (10/10/2008)
American corporate culture needs to change.
Leaders (ceo's etc.) should not be able to hand off crisis to someone else to fix.
And unions should not run corperations for the sole purpose of broadening their culture of entitlement and power brokering to corrupt politicos.
In Japan CEO's don't jump ship and run off with hunreds of millions of dollars.They look at the long term and stay with the ship and are held accountable and it shows in their R&D and product.
I'm afraid the current "every man for himself" culture of greed and corruption has finally taken it's toal.
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J M C 3 11:58AM (10/10/2008)
I just see rewarding Pelosi ,Frank and Dodd with Carte Blanche in electing a rubber stamp president as an endorsement of this mindset.
Bobby D 11:54AM (10/10/2008)
"these two companies hold in the fabric of American life, which is both material and emotional"
Really? I'm not entirely sure of the validity in this statement.
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Todd 11:54AM (10/10/2008)
Fear not, they just get ANOTHER $25,000,000,000.00 cash in taxpayer money, and when they burn through that, another.
Suggestion to Maximum Bob: Try sharing one Lear Jet between all of the executives when you fly to the Bahamas to play golf, instead of each taking your own. You're burned through the 25 billion we ( tax payers ) just gave you last week pretty quick.
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