GM to File Bankruptcy, Chrysler to Exit
By Barry Ritholtz - June 1st, 2009, 7:02AM
Apparently, there is some strange U.S. rule that that allows only one major auto manufacturer to be in bankruptcy at any given time.
We may see a brief overlap, as GM’s filing today seems to be pushing Chrysler out the courthouse door. Hardly a boost to the recession.
But, do not expect to see GM’s restructuring happen so quickly. They are a much bigger, more complex, and more debt-ridden entity. (At least they once were . . .)
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Note: Motor vehicle sales will be trickling out all day today, expected to be under 10 million units.
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chart via NYT
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June 1st, 2009 at 7:19 am
As I said earlier, a GM bankruptcy should cause the markets to rise all week, and by a large amount. TV flacks will explain why. I can’t.
On a different note: My guess is that a new commodity bubble is forming. Oil will approach and may surpass $100 very soon. Government money is directly or indirectly supporting it. I am wondering if it’s eventual collapse will create another cascade free fall that causes all markets to drop, creating a new financial crisis? If so, how will Uncle Stupid bail out the financial system on this one?
June 1st, 2009 at 7:24 am
http://blogs.consumerreports.org/cars/2009/05/index.html
May 30, 2009
Concerned about GM’s bankruptcy?
“Most of the Chrysler dealers I know are buying at auction” said Bendell. “There is a ready market for used cars, prices are astronomically high.”
Be especially wary of buying a “new” car once it must be sold as a used model. The U.S. government agreed to back warranties on new cars sold during the Chrysler bankruptcy, but if the model is sold as used the compelling “Lifetime” powertrain warranty protection is not available, as the warranty is non-transferrable. Plus, financing rates are also likely to be higher for a used car than a new one.
While it may be tempting to save big on a new car now, remember the risk you may face bigger losses later in depreciation and increased repair costs. (Should you intend to keep a vehicle longer than five years, depreciation may not be a factor, though reliability should given even higher priority.) Purchasing a vehicle from an automaker going through bankruptcy exposes the consumer to further risks, as there may not be the traditional lemon law and product liability protection.
…Barry, I know you are looking for a deal on a used PT Cruiser…just be careful..
June 1st, 2009 at 8:01 am
Geithner’s soothing words to China-
“In words clearly intended to soothe Chinese concerns that its vibrant export economy might be targeted by U.S. lawmakers who are feeling pressure from soaring American joblessness, Geithner said the Obama administration will resist any such moves.”
Obama blows- we are so indebted to China now- our only objective is to throw the American worker overboard so China can continue its “vibrant export” economy- joblessness- who cares- not when you need Chinese money to run our own government- and finance the very programs to help the unemployed-
We are flabby, weak and pathetic
June 1st, 2009 at 8:05 am
I thought pushing Wagoner out was gonna fix everything at GM and bankruptcy would be avoided? Didn’t they tell us he was the problem. Not suprising that I haven’t heard one person suggest that Ron Gettelfinger should be out for his contribution to this mess.
June 1st, 2009 at 8:14 am
@ dead hobo-
“The market sent a clear message in May, it will ignore any and all bad news. We expect to see a correction” that will take prices back down to $40 a barrel, wrote Stephen Schork in his Schork Report.
June 1st, 2009 at 8:28 am
>> Didn’t they tell us [Wagoner] was the problem.
Are you sure you heard anyone say he was “the” problem?
June 1st, 2009 at 8:31 am
call me ahab Says:
June 1st, 2009 at 8:14 am
“The market sent a clear message in May, it will ignore any and all bad news. We expect to see a correction” that will take prices back down to $40 a barrel, wrote Stephen Schork in his Schork Report.
reply:
————-
Even the WSJ has noticed that high oil prices aren’t economically justified. For at least a couple of weeks, their daily stories on this have gotten bigger and bigger. Being flacks, they ignore any cause and effect relationship between bubble-nomics and oil prices. They just marvel at the inequity.
Using last summer as a guide, oil will undoubtedly go much higher before the price breaks. The eventual burst will cause another cascade failure in other asset values. Since no two financial events are the same, my speculation with the coming collapse will be that the stock pump will go into overdrive. There will not be another dip like last year, however. The Treasury likely considers the stock market too big to fail and is actively protecting those who bought and held throughout the event.
June 1st, 2009 at 8:34 am
The chart shows Trucks growth as a percentage of the GM Fleet. Is this because trucks are exempt from CAFE regulation?
June 1st, 2009 at 9:11 am
Talking to some of my more crude acquaintances this weekend…. amazing, the hate for GM. Universal that they’ll “never buy Government Motors, ever again.”
Wish we could rouse some of that indignation against the bankers. Too abstract, I guess.
June 1st, 2009 at 9:13 am
What’s the impact? 400, 500K jobs up and down the chain?
June 1st, 2009 at 9:19 am
We’re getting a perverse short term bounce on this very bad news. But the long term impact on jobs, industrial areas of the country and federal, state and local budgets will be long lasting & painful. It seems like everything is “the bottom’, bankruptcies, insignificant blips in home starts, sales, job losses, everything is the bottom.
Meanwhile NYT article about banks raising their pay.
June 1st, 2009 at 10:02 am
probably appropriate that i post this bloomberg article on latvian h**kers..
http://www.bloomberg.com/apps/news?pid=20601039&sid=aSRh7Cf2DTrU
June 1st, 2009 at 10:03 am
Mannwich just took his ball and went home. All clear to short everyone.
June 1st, 2009 at 10:09 am
Mannwich, I hear you.
I’m going back to my trusty 50 day MA. If over — we’re in an up market.
You’ll never be early, you’ll always be late. But being early has cost me money thus far, this year.
cjc
June 1st, 2009 at 10:11 am
Wow, market up 2+% and the VIX only down half a percent. Not that I blame them but somebody’s still awful nervous about this market. What an or*gy!
June 1st, 2009 at 10:13 am
Am still sticking with reflation hedges (now my main trades) and some other longs (mostly emerging markets, which is a reflation play like everything else), but other than that, I’m going to cash, along with my TIPS. I’m basically all done. This market is a joke. We have a real economy floundering all over the place and the fake markets telling us everything’s going to be just honky dory, when in reality it’s just being manipulated to stoke a false confidence by the sheeple.
Hat tip to karen on the reflation call. Seems you’re right on the money here, right now anyway. Panic buying by J6P seems to think so, so this could go on all summer and maybe longer.
June 1st, 2009 at 10:17 am
I’m also now firmly in the double dip camp. The manipulations will continue to try to get the Dems to and through the midterm elections next year. After that, all bets are off. The questions is, will they be able to prop it up that long? It’s all about election cycles and has been for a long time now.
June 1st, 2009 at 10:17 am
Mannwich Says:
June 1st, 2009 at 10:03 am
Mannwich just took his ball and went home. All clear to short everyone.
reply:
———–
Sorry. It’s not over yet. But I’m staying out because I never invest in what I don’t understand. Phony rallies, bear market or otherwise, confuse me. I don’t understand why people who are otherwise intelligent could be so easily fooled again and again.
The bubble rally is producing mark to market gains that offset the losses recorded in prior quarters. Since the government has chosen to be a part of propping up large failing businesses, a rising market just helps it out. Especially the banks. Thus, it has become a partner of convenience with bubble blowers. I suspect Uncle Stupid is hoping the rally creates economic expansion, as opposed to a rally being caused by economic expansion. Regardless, Uncle Stupid has been corrupted into a support position for the bubble, and is likely it’s main financier, at lease indirectly.
June 1st, 2009 at 10:19 am
@Mannwich,
sorry to hear that Mannwich. But I do get the sense that this is the last short flush out. Of course I’m basing this on nothing but my gut analysis (GA). I’ve been hedging my shorts (SRS and others) with a good dose of TNA recently. I’m looking to add to SRS.
June 1st, 2009 at 10:20 am
The VIX dont lie folks.
Like I and I said last week… its going to take alot more shenanigans than this to shake me out of being short here.
I respect the consolidation pattern, but this shit is so engineered and phony its disgusting. There is no way I can get long this beast. Normally I would flip my positions here on a “breakout” like this and go long… I cant do that now for so many reasons.
For my one and only whine of the day… if the garbage that occurred on the tape at the close on friday had been in the other direction, there would be a huge rabble rousing for sure and it would be time to fry the shorts again.
Effing ridiculous.
Alright, back to trying to make some money in this rigged game.
June 1st, 2009 at 10:24 am
I’m pretty sure I’ll try again at some point but this was a lesson to never fight the trend and the trend is up. The feds and their elite compadres are doing everything they can to get this market up, so it will likely work for a while. Right now I’m just going to watch my GDX, DIG and emerging markets play and sit on a pile of cash (well, what’s left of it, anway). And besides, it’s summer and gorgeous here. Gotta enjoy the nice weather while I can. Time to get outdoors. Screw this bullshit.
June 1st, 2009 at 10:24 am
@ ZackAttack at 9:11 am
“Wish we could rouse some of that indignation against the bankers. Too abstract, I guess.”
My small gesture has been to take out a new credit card through my local credit union and to cease using my BoA card.
Now just this last week I received a notice from BoA re changing terms, that “lack of use” could result in their cancelling my BoA Visa card. tccch! sore losers.
June 1st, 2009 at 10:25 am
from stocktiming this morning:
9:55 AM – Monday, June 1st. *** NYA Index (New York Stock Exchange) Breaks Out …
It is now 9:55 AM and the NYA Index has broken out of its 6014 resistance after 3 attempts in the past 30 days.
This is short term bullish as the NYA now heads up to test its 6351.80 resistance level. At 9:55 AM, the NYA was at 6146.80 which was 3.3% away from the resistance.
GM’s bankruptcy was already priced into the market this morning, and the DOW stock changes are a plus. (There were two DOW stock listing changes this morning: GM and Citi were eliminated, and CISCO and Travelers were added in their place.)
http://www.stocktiming.com/Monday-DailyMarketUpdate.htm
June 1st, 2009 at 10:25 am
I wouldn’t attribute the panic buying to J6P, although there’s probably an element of it here. It’s the professionals that are panic buying here, no doubt. They’re far safer chasing this thing now than risking being out of the herd.
Valuations are out the window here. Everybody’s afraid of missing the boat. Amazing that even Luskin is voicing a cautionary call here:
http://www.smartmoney.com/investing/economy/ahead-of-the-curve-not-so-fast/?page=all
He still doesn’t seem to get it though. He still doesn’t acknowledge the problem of the debt bubble and job market weakness. He just thinks that the “shock” of last year makes us vulnerable now. Either that or he does finally get it and he’s just trying to shape a narrative for a weak recovery that fits into what he’s been saying up to now.
June 1st, 2009 at 10:27 am
I believe that there are many like Ben who take what the market is giving. Ownership of stocks does not mean belief in said stock, management, or the economy at large.
If there is one thing I have learned, it is the true meaning of ‘oversold.’ You can capitalize on the bounce, without believing in the fundamentals.
On the March bounce, I did not get this, and like DHobo, could not/did not “buy into” it.
Next time around though, I might. But my point to the discussion is that you don’t have to believe it to make money on it… — better lucky than right, I think I hear others say.
Also, I wrote down in late 08. Roubini said this would be an L shaped recession. I think some of the graphs (CR) support this. downdraft has abated, now printing horizontally on a lot of the graphs.
(Skipping the debate on gov’t programs and wisdom or effectiveness of same, we cannot really know the outcome until it is upon us.)
June 1st, 2009 at 10:28 am
Who’s bidding up the puts here I wonder…
Probably the same folks who have been pumping this shit.
June 1st, 2009 at 10:30 am
The VIX has now jumped up with the market. Weird stuff.
June 1st, 2009 at 10:33 am
batmando http://www.ritholtz.com/blog/2009/06/gm-to-file-bankruptcy-chrysler-to-exit/comment-page-1/#comment-178198
Indeed. I have no idea why people still bank with the mega banks. There are so many better alternatives than to put up with these bureaucratic beasts that just abuse their customers.
USAA.com I recommend them to anybody. Online only operation that I’ve been with for 20+ yrs. No fees. Great service.
Boycott the mega banks for crying out loud!
June 1st, 2009 at 10:34 am
Yeah you dont see this everyday Onlooker… never seen anything like this in the 4 years I have been doing this. (I know that’s not a long time for historical comparison)
Either someone is collaring a shitload of stock here. (Long stock, short upside call, long downside put)
Or more likely, large players are loading up on puts because they know this whole thing is a crock of shit.
June 1st, 2009 at 10:45 am
Sure left a big ole gap to fill there, now didn’t they? I still don’t know what’s behind the gap filling theory but apparently there’s something to it. I do know that you usually don’t want to buy or cover into that kind of frenzied open. We’ll see what happens here but you’d think we’d at least retrace a bit of this move. But this market has been befuddling the best of us, no doubt.
June 1st, 2009 at 10:46 am
I can see the headline “GM bankrupt, Dow Rallies”
Their is something just not right about that headline.
I mean, I know they should have been bankrupt long ago, but so should be some of the banks we know today.
What is so special about banks? Beside that, big once, those are – “system important”.
I think all the young people today, should thank the generation before, for this wonderful mess.
S&P testing January heights as I write. If it brakes, I have a better headline for you:
“S&P rallies to year high, on the news of GM bankruptcy”
June 1st, 2009 at 10:53 am
I Man
If this market settles out here for a while I think the VIX will drop like a rock. I sure wouldn’t be a put buyer here. A lot of risk there it seems to me. But what the heck do I know!
June 1st, 2009 at 10:54 am
Hey- someone who’s been around the trading game for awhile… MEH, Hobo, Mistress, LB, … BR:
Re: the VIX-E and the VIX-N today… is it normal to see alot of put buying on a breakout of the SPX 200 day MA?
This volatility spike today with the indices up big is something I havent seen before… is there an obvious reason for it that I’m missing here?
June 1st, 2009 at 10:58 am
“Today marks a defining moment in the reinvention of GM,” said company President and Chief Executive Officer Fritz Henderson. “The economic crisis has caused enormous disruption in the auto industry.”
He makes it all sound like the economy has caused all the problems the big three are dealing with and not any mismanagement and poor strategies by past executives, including saddling themselves with legacy union and retirement costs. Just like the ending of one party’s control and another taking over, the effort to re-write history and bury the facts has begun.
June 1st, 2009 at 11:08 am
deanscamaro
Amen to that. That of course is everybody’s tune these days. Nobody saw it coming. It’s beyond our control. Etc.
They built a friggen industry on a business model that counted on huge debt and constant turnover of cars/trucks by the shallow American consumer. When they saw the number of autos being purchased with home equity loans they should have gotten a clue. They also got to the point where they were making more money financing than off the product itself. Another clue.
More wealth has been squandered in this country on automobiles over the last 30 years than on anything else. We’re just waking up to that fact, finally. For a while anyway.
Now they’re still fooling themselves about where the sales figures are going in the future, just like the housing industry. They’ve created a huge inventory overhang out there and they better get used to selling closer to 10 million per year (industry wide U.S. sales) than 15-17 million. The sooner they come to grips with that, the better.
June 1st, 2009 at 11:14 am
Its the government finance bubble in all its glory. It will be bigger than the housing bubble, and it could go on for years. Just trying to buy time until we can get 3B Asians borrowing like mad. Forget GM, its a non event compared to the government finance leviathan.
June 1st, 2009 at 11:15 am
I-Man, i wouldn’t pay attention or put much stock in the $vix.. it’s more of a hindsight tool… it’ll be in the 20s soon anyway…
June 1st, 2009 at 11:30 am
karen
on VIX 20
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ailIQEL.352Q
But of course, consensus is right only 20 % of times.
June 1st, 2009 at 11:51 am
thetanman Says:
June 1st, 2009 at 11:14 am
Its the government finance bubble in all its glory.
reply:
—————-
Hence the name Obama Put. If Uncle Stupid doesn’t fix this soon (HA HA, of course they won’t) Bubble Burst #3 will be massive and will take less than a couple of years. Unfortunately, there won’t be any bail out money available for it. China will buy everything for pennies. All they have to do to take over this country is wait a relatively short period and support the current pump.
June 1st, 2009 at 11:59 am
@hobo: Then the refrain will be: “nobody could have foreseen”………
But they will have gotten past the next election cycle by then…..maybe.
June 1st, 2009 at 1:21 pm
http://money.cnn.com/news/newsfeeds/articles/djf500/200906011039DOWJONESDJONLINE000355_FORTUNE5.htm
Some GM Suppliers Mull Shipment Halt – Sources
GM’s filing comes as many suppliers prepare their own bankruptcy strategies or are gearing up to furlough employees for a longer period of time, the people said.
“We have cut all we can so the only thing left is to tell our people to stay home and keep our factories dark,” someone at another supplier said. “We have plants that are now going to be down for the entire month of June.”
Meanwhile, the financial stress intensified on some of the already struggling auto parts makers.
Lear Corp. (LEA), a maker of automotive seats, said Monday it won’t make a semi-annual interest payment of about $38 million due on June 1. The company said it will utilize its 30-day grace period while it continues discussions regarding a capital restructuring with its lenders and others.
Other companies that are expected to be hit by GM’s filing include American Axle & Manufacturing Holdings Inc. (AXL), Shiloh industries Inc., Tenneco Inc. ( TEN), TRW Automotive Holdings Corp. (TRW) and ArvinMeritor Inc. (ARM).
Visteon Corp. (VSTN) and Metaldyne Corp., two auto parts makers, filed for bankruptcy on Thursday.
CSM Worldwide automotive analyst Jim Gillette said about 50% of the U.S. suppliers have equity and can survive.
“There is, however, the bottom 25% that are in deep trouble,” he said. “Half of those are basket cases and the only solution will be liquidation or being acquired by another company.”
…Now explain to me h0w the unemployment thingy works again…U3 will be?????
June 1st, 2009 at 1:59 pm
“GM to File Bankruptcy, Chrysler to Exit”
Yep and the last time I looked GM shares were up 10%. These fools will suck every nickel out of trading its shares until they reach zero. These markets are totally irrational.
June 1st, 2009 at 2:12 pm
The “markets” are obviously broken and have been for quite some time. This just cements it.
June 1st, 2009 at 2:18 pm
hobo,
Hussman has pointed out that one result will be foreigners buying our companies. The market will go up and CNBC will cheer. It’s a bubble: stupid things are supposed to happen. In the mean time..well you know. And it WILL surprise most people on how long it’ll go on. Two years is the lower end. They will just mail people checks if they have to. Nothing is off the table-that’s why people are buying. Anything and everything, legal or not, has been done, and will be done.
June 1st, 2009 at 2:34 pm
thetanman said: “Nothing is off the table-that’s why people are buying.”
I had the very same thought (almost an epiphany) this morning. It just seems that the markets think the O administration will simply do ANYTHING to keep the markets higher for as long as they can, so the buying continues. It’s the Greenspan Put X 1,000.