With GM’s resale values and stock price hovering at record lows, two Texas dealers have come up with one hell of a sales gimmick. Buy a GM vehicle at Frank Kent Motor Co. in Fort Worth, Texas by the end of the month and the owners will give you 50 shares in General Motors. The scheme is advertised as a celebration of GM’s 100th anniversary, but when asked by Automotive News [sub], Frank Kent Motors owners admit that the promotion was actually inspired by the depths to which GM stock had sunk. And while “50 shares of General Motors” sounds better than “$327” (based on GM’s $6.54/share price at the time of writing), the dealers see the stock as (get this) a hedge against depreciation. “Typically when a customer buys a car and they go to trade it in in two or three years, it has depreciated,” Frank Ken Motors owner Will Churchill said. “Hopefully in two or three years (the stock) will probably be worth more.” Or, as we are fond of saying around here, not. There are very few scenarios for GM’s next several years that involve good news for its stock holders, and quite a few that could see your “incentive” stock wiped out to zero. And then all you have is a massively depreciated Aveo (or whatever). And twice the buyers remorse.
That screenshot shows rats leaving the ship. GM went from being a safe hold stock for everyone to a get out while you can. Clearly the focus was on shorting and playing the stock rather than long term prospects. 42 a share will mark the high point (right after the veba was announced) that preceded the fall.
The idea has merit, but it is not “hedging”. A better example of a hedge would be to give away Hyundai shares with every GM vehicle.
Wow, some dealers are getting really creative in thinking up new ways to screw the customer.
Especially since you’ll be required to pay capital gains tax on the profit you make whenever you sell them. Money that will ultimately be spent on (amongst other things) the federal bailout.
Do GM still issue a dividend ? Could be worth a couple of gallons of gas each year if they do.
Things the Kent Motor Company considered giving away with the purchase of a new GM vehicle, but thought better of:
The original cast soundtrack from Cats
A free personality assessment from Dianetics
A case of Olde English 800
An overnight date with Sandra Bernhard
14 days exploring the tribal regions of Pakistan
Your own Amway distributorship
Prostate cancer
sitting@home, The dividend has been “suspended.”
I think that’s financial-guy speak for “we’d like to be paying a dividend and we want to investors to think of us as paying a dividend but we must acknowledge the reality that we can’t afford a dividend, so there’s no dividend.”
I think this adds up to GM’s not paying anybody anything but Yahoo!Finance somehow still shows a dividend (rhymes with “pretend”) of a dollar.
Cicero : You know, a car salesman once tried to sell my friend on a multi-level marketing scheme (the now-defunct b2bnet or something along those lines) once. He stopped when my friend said “My coworker gave me the exact same presentation.”
I hope they give the customers the stock as printed certificates. That way they can at least use them as TP when it goes to zero.
Nobody gives anything away without knowing what it’s worth beforehand.
In this case precisely what the customer paid for it.
allythom :
Especially since you’ll be required to pay capital gains tax on the profit you make whenever you sell them. Money that will ultimately be spent on (amongst other things) the federal bailout.
Well, for that you have to have a PROFIT (capital gain). And as I understand it, the capital gain won’t put you into a new tax bracket for ordinary income, or for calculating the tax on the gain.
If you keep the stock longer than a year plus a day (it’s arguable that any minute possibility of a real GM turnaround would take longer than this), your capital gain would be 15%. You would still keep 85% of your capital gain.
If, on the other hand, you hold the security for less than a year plus a day, (making it a “short term” gain), then the tax would be the same as your marginal tax rate. If you’re in the 28% tax rate, you’d pay 28% and keep 72% (of the gain).
Unless the next Congress passes and the next President signs a bill raising the capital gains tax rate. When you hear of “raising taxes on the wealthiest Americans,” cap gains is often one of the rates being considered for an increase. And yes, one political party has a habit of raising these rates.
All this presupposes an actual GAIN when you sell, however. I don’t believe the value of the stock (at the time you buy the car/get the stock) would be counted as a “gain.” For example, if the car came with free floormats, that wouldn’t be counted as a “capital gain.”
Only the appreciation, if any, would be counted as a gain. If you don’t have a gain, then you don’t pay tax. But you can’t deduct losses.
And don’t forget brokerage fees. If it costs you $30 to sell your shares, that comes out of your gain. Or your pocket. And brokerage fees are not tax deductible.