Back in June, Barron’s advised [what conservative talk show host Bill O’Reilly creepily calls] “the folks” that GM shares could triple in value. Oh how we laughed! Well, surprise surprise surprise! Barron’s [sub] is now eating their words. “STAGGERING. THAT’S A FIT DESCRIPTION of the calamitous decline of auto markets in developed nations this year. U.S. October sales numbers released last week were ugly, down 32% from the year-earlier level and slamming all car makers hard. The month’s annualized selling rate was a paltry 10.5 million vehicles, the worst in more than a quarter-century. The weak financial positions of Detroit’s Big Three — General Motors, Ford and Chrysler — means their survival is at stake, and that Barron’s was wrong in describing GM as a buy late last spring.” Hey, wait a second; that sounds familiar. Market sucks. Who could have predicted this? Not our fault for missing it… GM! Anyway, how ’bout them bonds? “Our enthusiasm for GM was clearly wrong, as was a suggestion that its bonds, like the senior note maturing July 15, 2041, would be more valuable,” Barron’s writes. “They now trade at 20 cents on the dollar, versus 60 cents when the story was published.” Man the lifeboats! What? They’ve already gone? Look for GM’s stock to die a death tomorrow [Monday morning]. Trading suspended? De-listing from the Dow Jones industrial Average? Anything’s possible, and all of it’s inevitable.
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Of course, out in the real world, writing unadulterated crap has consequences.
It must be great working for Barron’s.
20 cents on the dollar for GM bonds are not bad. I could see them going down to 10 cents or so, but given the size and poltiics how much of a haircut can bondholders get.
What’s funny about all of this is the real problem is people aren’t buying cars this Q or next, and I wonder how all the bailouts in the world would change that. A $300 billion dollar bailout is only $1000 per person in the US — basically a decent sale incentive, and you are going to need a lot more to get sales going again.
And I also wonder how many cars GM would sell if they gave every new buyer 15K.
What I dont get is that if the Public are not buying any Vehicles, why then are the Big 2.8 making them? Maybe just to store them in unused Warehouses or near Airports that have surplus Hangars, like around the Detroit area!
Barron’s is wrong a lot. Not unlike Cramer. But very much unlike him, they have admitted their error in logic. Well, this time, anyway.
Usually they don’t, so that’s a surprise.
I predict that GM stock is going to fall to a price cheaper than Fords now that it is known that the company won’t make it to the end of the month unless they get some quick cash.
My fearless prediction: in the near future, the picture RF will choose to accompany a GM Death Watch article will be a photo of the hulk of a sunken ship, rotting away deep in Davey Jones’ Locker.
Well, if someone could get Porsche interested in taking over GM or Ford (preferably both) and if someone else could otherwise occupy the SEC, GM and Ford stock could trade for $1000.
Nevermind …
Robert,
While he’s no Keith Olbermann, Bill O’Reilly is much more of a populist than an ideological conservative. In fact, he denies being a conservative. While not considered on the other side by conservatives, he’s generally regarded as a blowhard by those on the right.
On a more posititve note… the photographers that own the rights to sinking ship photos gotta’ be making a killing.
(Stock tip of the day: GM short; Masterlock padlocks long).
What will you blog about when the big 2.8 are gone?
autoemployeefornow :
Their replacement(s). Or, alternatively, whatever’s out there. Somewhere.
At 20 cents on the dollar couldn’t someone come in and buy up most of the debt for 10 billion or so? If GM could come up with the cash, it seems like a good deal for them to buy up that debt, and also save several billion a year on interest. Plus, as I understand it, the difference between the face value and the purchase price would become net income of almost 40 billion??
At 20 cents on the dollar couldn’t someone come in and buy up most of the debt for 10 billion or so?
There is no reason for anyone to do this. The bonds are priced at that level because the resulting effective interest rate reflects the market’s view of the risk of the debt. As the risk goes up, the market price of the bond goes down, because the likelihood of collecting the interest and principal payments from GM is decreasing.
If anything, these bonds are going to fall further in value, because GM news is getting worse by the day and the likelihood of default is increasing. Those 20 cent bonds could easily go to 10 or 15 cents. They are closer to junk than they are to institutional quality, so only aggressive vultures and foolish retail buyers who still like their Chevys would be interested.
It would make no sense for GM to buy them. The effective interest rate to GM is less than anything that they could currently get from the market (assuming that anyone would loan them anything at all), and in the event of a bankruptcy, these bonds will be crammed down, anyway.
From GM’s perspective, it makes sense to raise and conserve as much cash as possible, from whatever source possible, and to stretch out its obligations as much as it can. This is not what would serve the bondholders, the government or the taxpayers, but that’s all that GM’s (incompetent) management can do at this point.
AIG bonds doubled on the news of the government bailout (Symbols XFD and KNO). Why wouldn’t there be be similar reaction with GM, especially if the current shareholders were wiped out like AIG and Fannie, etc? Buying all the bonds would give you a debt free GM about 10 billion, it doesn’t seem like that much.
AIG bonds doubled on the news of the government bailout (Symbols XFD and KNO). Why wouldn’t there be be similar reaction with GM, especially if the current shareholders were wiped out like AIG and Fannie, etc?
It’s a lot to risk on something that isn’t anywhere near a sure thing.
Buying all the bonds would give you a debt free GM about 10 billion, it doesn’t seem like that much.
No, it would not. GM would still have the debt, it would just owe it to a new bondholder, with the same obligations that it always had.
This is hilarious. Years ago, I heard Louis Rukeyser at speaking engagement. He had this to say about Barron’s: ‘These guys have been wrong so often it’s a wonder they managed to stay out of politics.’
I should add that in the current environment, a picture of the nuclear tests at Bikini Atoll (surrounded by all those obsolete ships of war) would be most apropos.
Good call on the stock tanking, RF. As of 10:19 MST, GM’s stock is at $3.21, down over 26%. I’m not even sure they’ll make it to December at this rate. And yet, in spite of the unfolding horrors, I can’t make myself look away…
As of 10:19 MST, GM’s stock is at $3.21, down over 26%.
It’s a matter of time before GM gets removed from the Dow.
With these price declines, GM contributes to a decline in the entire market, as traders react to movements in the indices to make their buy and sell decisions for other stocks.
As GM just drags down the Dow, day after day, it hurts everyone else. We would get a bit of rally simply by taking them out of the equation.