I had an interesting conversation with a hedge fund manager on the way home tonight — he bet me (an expensive dinner) that 5 years from now, GM is back int he need of some reorganization.

His view: GM is not as clean as it appears, the disclosures on the book (prospectus) note that the “We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan.”

And, he argues, the Fed has to raise rates eventually — ending the cheap financing that helps GM;Lastly, the company is not strong enough to survive the next recession.

~~~

I took the bet — 5 years hence, GM should still be here surviving.

How would you have bet ?

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

50 Responses to “Is GM Fixed? How Will GM Do Over Time?”

  1. ger says:

    you might want to start pulling the ads for BMW from your site

  2. I’d want my memory refreshed. Did GM eliminate all of its pension obligations, or is still on the hook for those?

    I’d vote your way if they no longer have those obligations. Without that, I’d pass on this bet.

    Regards

  3. greg says:

    BR, you can’t really lose this bet as long as there is a functioning government in place. Well played BR, well played sir.

  4. Thor says:

    I’d take BR’s side of that bet as well.

  5. buckykatt says:

    GM and the unions will go back to their old ways of doing business.
    Failure is assured, the timing is hard to sort out at this point.

    As I said on 2-23-2009, and I profited very well.
    “And speaking of terminal, the WSJ had a big story regarding the various ways GM could do a bk, and I think that will be the end point, a matter of when, not if.

    No way Chrysler survives, they will go first.

    GM put Saab into bk last Friday.

    F might be the lone member of the big 3 to stay out of bk.”

  6. algernon says:

    I would take that bet too. A company who has had all its billions in debt to bondholders wiped out, been given in excess of $50 billion plus subsidies to its finance arm & some of its products from the government…such a company should be able to survive quite a lot of inefficiency. These are huge advantages it has over its competitors.

    Ford, Honda, & Toyata got nothing. The PAY taxes. They have bondholders to whom they must make payments.

  7. Guillermo says:

    I would have voted just like you did. Auto sales are still so depressed in terms of sales per person that it’s really no nonsense that they’ll have a good go at it for a few years.

    Additionally the UAW has an interest in not getting too greedy, they still have an equity stake. After the UAW sells off it’s remaining stake and there’s been a couple of good years, expect workers to start demanding wage increases and increased benefits. The ability of management to share profits with workers, without making promises they can’t deliver or agreeing to unfavorable terms, will be the key to this. Additionally, they better be really, really careful on the financing side. If they start overestimating the value of leased vehicles at the end of the term again, it’s going to be really, really ugly.

    I expect this all to take much longer than five years to play out, though. Gimmicks in the financing side can be hidden for years.

    I would not touch that stock with a ten foot pole, though. If I absolutely had to be exposed (mutual funds etc.), I think I could work with a 30-40 vertical spread for next July if the (non-existent as-of-yet) options were trading reasonably, but I wouldn’t do it any other way.

  8. lulsh says:

    Government Motors should have been liquidated. The management is no better in my opinion than before, the union is still the same and the only reason why it’s still around is because of politics and special favors. Those are the very same reasons why it will survive over the next 5 years.

    Comparing the bank issue with this company is farcical.

  9. MotownMichael says:

    I posted this comment on your “Too Bad Banks Missed Out On the GM Treatment” post:

    As somebody heavily involved in the auto industry, and been to virtually every assembly plant in North America, and many in Europe, I can tell you GM is a totally new company: the have not only great products, but world-class products now (Wait until you drive a Volt; its way cool, yes curmudgeons- it IS a game changer, everybody who has actually sat in it and drives it, wants one), being a gasoline guy however I’ll take a Caddy CTS-V wagon against any European sedan, any day for comfort, drivability, etc. Most importantly their manufacturing processes are great now, are extremely automated. I read that after the new labor contracts, they will have an approximate $400 per vehicle labor cost advantage over Toyota. In this business, that’s huge. Not to mention GM has a huge market share in three of the most important emerging markets: China, Brazil and Russia. Funny the Chinese love GM products, the Chinese will probably purchase close 18 million cars this year- And yes, this is why I bought their stock today.

    Chrysler has been quiet, but they have also been making great, actually monumental strides, and is a sleeper, that will awaken in 6 months to 1 year with awesome cars, and they have gotten a handle on quality (See the new Jeep Grand Cherokee, it rocks, and you can tell the Italians are in charge of the interiors, the days of cheap plastic crap are over). I find it ironic, the Italians will be successful where Daimler was not.

    Obviously Ford has had many home runs of their own and were able to avoid bankruptcy, and also negotiated better labor contracts and reduced capacity in older facilities, but still has a lot of debt.- had GM and Chrysler liquidated, Ford however would have filed a month later, as the supplier base would have completely collapsed. What the government did was smart, as it also saved Ford- which is why their chairman thanked the Obama Admin for how the situation was handled.

    All three of these companies are currently profitable with our current low volumes in the US- hopefully it will hit close to 11.75m, BUT they will be immensely profitable once the volume returns to a normal 15-17m vehicles per year.

    Detroit is back baby! And it will be a competitive force once again.

    Is there a precedent for this of the US Government taking over a company, turning it around, and privatizing it? Yes, one of the most successful IPO’s of the time was Conrail.

    http://en.wikipedia.org/wiki/Consolidated_Rail_Corporation

    Which was created from the wreckage of the ill-fated Penn Central Railroad in the Northeastern US. Conrail was created by the US government on April fools day, 1976. They did the same thing: rationalized their route structure, changed their labor contracts, and learned how to operate efficiently after the railroads de-regulated under Jimmy Cater in the Staggers Rail Act of 1980. After considerable debate in Congress, the Conrail Privatization Act of 1986 was signed into law by President Reagan on October 21, 1986. The then largest initial public offering in US history came on March 26, 1987 when Conrail’s stock, worth $1.9 billion, was sold to private investors.

    In 1999, it was purchased by Norfolk Southern and CSX for $10 Billion. Investors got a great return, the taxpayers got their money back, and the US got a more efficient railroad transportation network. Uncle Sam fixed the railroad problem-

    Disclosure, since they say you should invest in the business you know: I have positions in GM and Ford, but no other auto companies currently.

  10. Marcus says:

    Every market has number 1 and all the rest. In cars and trucks GM is number 1. You can’t beat number 1. GM will still be there in 5 years in some form.

    You will be picking up dinner.

  11. NormanB says:

    The prospectus tells you that there isn’t a rational way to evaluate GM. You have to bet that the governement has laid in enough cash and guarantees to cover any problems. As to the auto business itself, its a dog fight. There must be fifteen competitve great family sedans on the market, trememdous competition. Maybe a Daimler Benz or BMW with their specialty high priced cars can separate themselves to earn a buck over the long run but the rest? UGH. The auto stocks aren’t for producing earnings they are for buying and selling. Have fun.

  12. tangerinebunny says:

    5 years, yeah. 10 or 20 would be a more interesting bet.

  13. lulsh says:

    I will be happily shorting GM in the near future and when the union starts to bellyache about their wages.

  14. MotownMichael says:

    @ Norman- well, I’ve been long on Ford when I picked it up at $7 and change, and been a pretty happy guy, and will be real happy in the 30′s, where it will be this time next year. As I’ve said before- American autos cut back to where they are profitable in this market. The foreign automakers have not reduced capacity as much, so their fixed cost are indeed higher. At 15 million domestic units per year, they will be swimming in cash- Toss in China, Brazil, Russia, sales where American cars are competitive, and we have a winner!

  15. bulfinch says:

    “Detroit is back baby! And it will be a competitive force once again.”

    You’ve got a real knack for bubbly overstatement. Detroit isn’t even the best looking mistress in the leper colony.

    Auto stocks: 23 skidoo.

  16. MotownMichael says:

    -Remember lush- The big 3 were swimming in money building SUV’s (And management pissed it away on rotten products in the 90′s) with that same union work force that was averaging then $24-26 per hour, is now for the new hires making $14, and the foreign automakers are paying over $30 in Germany and Japan, and $22 to $24 here. The American car companies are the new low cost producers-

  17. Guillermo says:

    @MotownMichael has great points. I see great risks in the long-term though. You have to assume that just like the Chinese make planes now they will also start to make cars. While GM has a great position in EMKTs, I also see risks of decline there. GM has a great position right now, but that’s not to say they won’t totally blow it in a few years.

    Finally, it’s important to realize that while quality and production may be great, there is huge risks on other parts of the business. Financing cars with inflated end-of-term values is my main concern. If GM starts giving financing companies a put option as they did before and don’t get it right, there is potential for gigantic losses. They are well-positioned in balance sheet terms and their earnings multiple is in line with the market, but I see no screaming BUY. I am obviously biased by my stance that on principle I wouldn’t invest in a company with a history of such massive wealth destruction. I am biased by the past, I admit it. But I remember how bond holders were blatantly ripped off, and I would expect the bond market to remember too, which is something I think the CEO knows (that whole no-debt thing mentioned earlier today). GM is going to miss a chance to issue bonds at historically low rates because of this and maybe by the time they are ready to borrow, they will do so at less favorable terms. This alone tells me I can’t expect dividends any time soon, which makes me nervous because an investment in GM is probably tied-up in the company for quite a long time to come, and who knows what will happen in the interim.

    I really do think they have a change to have great profits in the coming years. Extremely low sales over the last two years and an aging national fleet make for great pent-up demand once we see an economic recovery. I just wouldn’t feel comfortable holding their equity without a collar or as anything other than vertical spreads–the risk is just too great. Plus, considering all the media fanfare, the action today was not impressive at all.

  18. MotownMichael says:

    Good thoughts Guillermo- The whole lease/residual value portion of the business back a few years ago was a disaster. We were all asking ourselves at the time how, and how long this was going to work- we found out a few years later, as you said: a massive destruction of wealth, but really it was death by a thousand cuts with these companies. I remember actually seeing ads for 3-year leases for a one time payment of $3499. I doubt we’ll ever see that again; nor should we.

    Actually China has been producing cars for quite some time; their auto manufacturing capabilities are huge, but not very automated. GM has several plants in China producing for their domestic market there. Ironically there were several strikes by auto workers in China at Japanese automakers this year which received little media attention here, but has been a boon to the industrial automation and robotics world, as they are now heavily automating.

  19. wngoju says:

    In 5 yr, GM is around; BR wins. The stock, though, is only tradeable, now, and then – anyway, ain’t you got better things to do?

  20. Marcus says:

    “Chrysler has been quiet, but they have also been making great, actually monumental strides, and is a sleeper, that will awaken in 6 months to 1 year with awesome cars, and they have gotten a handle on quality (See the new Jeep Grand Cherokee, it rocks,”

    It kills me that EVERY YEAR people come out and say “Okay NOW the American carmakers are building quality cars. Look at the new ___.” They’ve been saying that for the past 20 freaking years!!! Then they hit 2-3 years old and start falling apart, and suddenly American autos suck again… until someone says “Yeah but THAT was 2-3 years ago. NOW their quality is just as good as the Japanese.”

    An American will perform as well as a Japanese vehicle for the first 2 years. Then they start to have all sorts of annoying problems. Sometimes they don’t wait that long. I had a friend who bought a Pontiac Sunfire and was telling me at a party how much he loved it! I asked him to take me outside to show me his awesome new 6 month old vehicle and he declined… because the car was in the shop for some issue… for the 3rd time since he bought it. The Japanese vehicles barely have any issues until years 6-7. That (and all the pension and union expenses) is why GM will fail again… though I can’t say when.

    Thing is, I’d LOVE to buy an American made vehicle, but I can’t afford to throw away my money on asset purchases like the Fed does. I don’t have a printing press.

    Don’t tell me we make better quality vehicles until you can bring me proof of a problem free 6-7 year old (70-80K mile) American made vehicle. I’ve never seen one and I’m tired of hearing that the quality is better now, no wait, I meant NOW, no sorry I mean Now, oh well I was wrong then but NOW…

    Really?

  21. lulsh says:

    “-Remember lush- The big 3 were swimming in money building SUV’s (And management pissed it away on rotten products in the 90′s) with that same union work force that was averaging then $24-26 per hour, is now for the new hires making $14, and the foreign automakers are paying over $30 in Germany and Japan, and $22 to $24 here. The American car companies are the new low cost producers-”

    I get what you’re saying but they have not mopped up all the pension debt which increased your $24 average to $60. I have a hard time believing the average assembly line UAW guy is making $14…

  22. VennData says:

    ..been watching Fox News for so long it’s not true…

    http://www.youtube.com/watch?v=_XhAqG5f8Ak

    …Obama’s Socialistic, they told me that’s true.
    Venndata is laughing at me for missing this run
    And I hate listenin’ to him haven’ this fun…

    P.S. Thanks to Led Zeppelin et al.

  23. Ilya says:

    GM will depreciate faster than a new Caddy. You will win your bet but for the wrong reasons. Fifty bucks a share seems a reasonable value since it is Uncle Sugars crowing point. I see a ‘buy American’ campaign on the horizon. Look at the content of a new car. No matter where it was assembled, ask who manufactured the components and from where they were produced and imported.

    Most car folks don’t make money from selling the ‘sheet plastic.’ They make money from the financing Vig. When, not if , 10 year T-Trash is yielding over 10%, the piggies will be back at the trough. Is there such a thing as an IIIPO? Most of our failed industrials will demand access to the government teet in the name of of of of…….you fill in the blanks.

    The Chevy Volt is the car of the year? What hubris. I own a Textron EZ-GO plug in. Guess I’m green also.

  24. Guillermo says:

    @MotownMichael: Obviously this is a limited analysis (although the rest is linked on the target site) but I am a strong bull in the domestic auto demand front. My (admittedly limited in scope) estimate calls for a very strong recovery in SAAR sales. i think we could easily see a 25% rise in the number of vehicles sold per-person in the next few years. that’s HUGE, and it would still put us in the lower range of the sales numbers. The rate of new driver growth may be slowing in the US, (although increasing in EMKTs as correctly mentioned) but the demand for replacement vehicles is simply outstanding. You can all quote me and make fun of me later if I’m wrong, but I think a SAAR of vehicle sales in the 17M in the next 2-3 years is to be expected, and I don’t think 200M vehicles being sold domestically in the next 10 years is far fetched.

    Higher standards of living in the rest of the world are huge tailwinds that are not to be messed with, especially if a shift from investment to consumption happens in China, as Pettis has called for before. The higher consumption rates in other EMKTs means less growth in other markets, but the opportunities in China alone are huge. I will repeat that my shyness is all long-term. I really wanted to be an auto bear when I started that analysis, and let me just tell you, I can’t justify that position now. The tailwinds are really strong for sales, it just remains to be seen if the management can position themselves so that once the age of abundance ends, they are well positioned to thrive once the going gets tough.

    Does GM have great potential? You bet. Does the industry? My money is on it. Earlier I said I would be willing to invest in a vertical spread. Where my concern lies is their position relative to other competitors. I think they will perform well, I’m just not sure they will outperform.

    I think there’s a great opportunity to be had in high value-added suppliers in the domestic sector, I just don’t want to be involved in anything that has financing exposure without a hedge. But that’s coming from someone who never touches the finance sector or their liabilities unless it’s during a crisis (and even then, limitedly and broadly to avoid picking individual names)–in other words, a completely personal bias.

  25. Sechel says:

    Funny @ 6:30 p.m earlier before you even wrote any of this I posted the following on your fast money thread…

    1)We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan.
    2)On a U.S. GAAP basis, the U.S. pension plans were underfunded by $17.1 billion at December 31, 2009 and underfunded by $19.5 billion at July 10, 2009.

  26. Bill W says:

    I think you made the right bet. I believe auto sales are at about 12.5 million SAAR. Even in a double dip recession or a high interest rate environment, how much lower can they go. Not that I see a bright future for GM, I think their future is probably similar to Chrysler.

    I have a hard time believing they truly made the cultural and financial changes that were necessary. If the pain was inflicted to make the company lean and mean, why is the government crossing fingers and praying on bended knee for a high enough stock price to make the tax payers whole?

  27. b_thunder says:

    Will GM (the company) be around in 5 years? – Yes. Especially if Obama gets 4 more years ;)
    Will the GM (the stock) trade above $33 IPO price in **today’s dollars** in 5 years? No f***ing way!

    To MotownMichael:

    1. Volt is not game changer. It’s, well, not “anything” but a Chevy Cruze with a battery. If you drive it not 30, but say 60 miles per day, I think the Prius it will cost you less in terms of fuel cost. And Prius is $10K cheaper after gov’t bribes. Have you seen the fleet of japanese hybrids that’s about to be unleashed? One Volt vs all types of cars – large, small, sports cars, vans, etc etc. Volt is 3 years too late, and $12-15K too expensive. Have you tried Nissan leaf, the real game changer?

    2. You call today’s 11.75mm car sales the bottom? What if it’s The Top of the cycle??? As more people leave suburban foreclosed towns, and more young people continue living with the parents, don’t expect sales go to 16mm

    3. Russia, China, Brazil? Russia will do better ONLY if oil prices rise. And if oil prices rise, that will destroy GM. China? Well, they’ve been under japanese occupation for so long, they must hate everything japanese. But not to worry, the Chinese will copy Japs and GMs and Ford’s designs, start making COMPETITIVE cars and will kick GM out like they kicked out Google. I bet in 5 years GM will be forced out to make major concessions to the Chinese, and will hardly make any $$ in that market. Oh, and the Russians will probably nationalize GMs properties in russia as well.

    4. There’s not one car in the GM’s north america fleet that i’d consider buying, or i’d crave. (Currently driving WRX wagon with *a few* mods.)

    P.S. Italians make Chrysler cars more appealing? You mean the Italians will have influence over the car company that makes least reliable cars??? Well, I don’t think 2000 $100k Alphas that they’ll be selling will be enough. And as far as a tiny Fiat/Chrysler – the trunk is small to stuff your personal mechanic in there. And without the mechanic, I’d not drive a Fiat/Chrysler further than walking distance from my house. Sorry for the stereotyping, but they’ll have to prove me wrong before i trust them again.

  28. ruetheday says:

    GM is going to face serious challenges in the future, there’s no doubt. However, they’re not going to be back in bankruptcy in 5 years. So, good bet.

  29. baychev says:

    if i am not mistaken, the two largest shareholders, the government and the employee pension plan want to cash out of their investment. how could this possibly be good for the company, especially given that the employee pension plan is a strategic stakeholder?

  30. Why would equity investors ever invest in a name-brand company whose internal controls are lacking…?

    This is not an insignificant risk.

    If a company this large does not have controls in place, then I would not mind betting a dinner but I still would not own the stock!

    It is laughable…

  31. HEHEHE says:

    Barry I posted this yesterday but it needs to be posted again:

    GM IPO risk factor page 30 of their prospectus:

    “We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan.

    Our management team for financial reporting, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our internal controls. At December 31, 2009, because of the inability to sufficiently test the effectiveness of remediated internal controls, we concluded that our internal control over financial reporting was not effective. At September 30, 2010 we concluded that our disclosure controls and procedures were not effective at a reasonable assurance level because of the material weakness in our internal control over financial reporting that continued to exist. Until we have been able to test the operating effectiveness of remediated internal controls and ensure the effectiveness of our disclosure controls and procedures, any material weaknesses may materially adversely affect our ability to report accurately our financial condition and results of operations in the future in a timely and reliable manner. In addition, although we continually review and evaluate internal control systems to allow management to report on the sufficiency of our internal controls, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting. Any such additional weakness or failure to remediate the existing weakness could materially adversely affect our financial condition or ability to comply with applicable financial reporting requirements and the requirements of the Company’s various financing agreements. ”

    http://www.sec.gov/Archives/edgar/data/1467858/000119312510263484/d424b1.htm

    If any other company put that in an S-1 how long would you bet on their existence? 3 yrs? 5? This is something a small-cap exploratory stage company MIGHT be able to get away with in a high yield bond issuance off a shelf registration; not a company the size of GM in a frigging IPO. Essentially this IPO is the equivalent of the Edsel.

  32. Greg0658 says:

    tell your hedge fund manager friend to “get a real job”
    then he will understand how messed up that pov is …
    remember money facilitates but was not meant to be a job .. try and get the concept .. money was invented to get certain actions (performance) out of the populace to better the community

    building is hard .. tearing down is easy .. pushing opm .. wellll… thats a deep subject these days

  33. Grego658 – With the direction the U.S. is moving regarding the fiduciary liability of fund managers, the manager who avoids investing in GM because its internal controls are not adequate cannot be considered anything other than prudent !

    HEHEHE – overall, the media missed your point (I saw only one interview where concerns were raised)

    “This is something a small-cap exploratory stage company MIGHT be able to get away with in a high yield bond issuance off a shelf registration; not a company the size of GM in a frigging IPO. Essentially this IPO is the equivalent of the Edsel.”

    Lastly – has anyone here been able to reserve a Volt ? Try doing this through the website and you are directed to dealers who do not have any. This is typical of GM — distributed marketing, where you cannot get your hands on the product. In the case of the Volt, ultimately unless it is subsidized more, I cannot see how they will sell at $41k per car outside of coastal areas of the country where “Progressives” will buy it to feel good about themselves….

    So – no problem making the bet, however would not own the equity.

  34. By the way, I believed that GM should be saved, and believed it was firmly in the U.S. interest to bail it out.

    However, I would have saved it primarily to provide a production platform for U.S. military and infrastructure needs and only secondarily as a consumer products company….

    Perhaps it should have been merged into Apple — then you would probably see some success on the consumer product side !

  35. Being honest, every company would have the same disclosure in their prospectus. GM is simply more forthcoming than other companies because of the large spotlight on them at the moment.

    If I were a gambling man, I would have bet the same as you.

  36. Hi Kent,

    I know a bit about accounting and auditing – accounting firms do not say a company lacks internal controls lightly (particularly large firms like GM who pay significant fees, and in this case connected to the government).

    While there may be some cynicism about the accounting and auditing industry and we should all be careful about investing, etc, to have a large, well known company such as GM go public without having its auditor consider it to have proper internal controls is a very large red flag…

    Perhaps that is why retail investors in the U.S. did not receive an allocation.

  37. Orson Wang says:

    The poor financial controls are not news (e.g. Rattner). Installing a new CFO (Liddell replacing Young) was presumably a response to this. The unnamed hedge fund manager is essentially betting against Liddell who is not lacking in motivation in his current position (he has publicly stated his ambition to pursue positions “beyond CFO” and the CFO position within GM has traditionally been a precursor to CEO).

  38. uneekconstraint says:

    @Kent:

    I agree with Alaric, a material weakness in internal controls is a large red flag, and especially since Arthur Andersen’s demise no self-respecting auditing firm will remove that until processes and controls are improved and the improvement is well-documented, usually over multiple quarters. While I haven’t seen GM’s paperwork it is usually the auditor that adds the verbiage, not the company (or the company adds it because the auditors won’t sign off otherwise).

    If it were anyone but GM multiple quarters of a “material weakness” designation could affect the interest rates they receive for revolving debt, although that may be irrelevant in this case if the gov’t is pulling the strings…

  39. Cynic_FA says:

    Put me down for dinner at the Ritz Cartlon – GM does not go broke in five years.

    Key fact is the union has a no strike ageement for five years. The first ball bustiing union giveaway won’t come until 2017. Then it will take five more years and a recession for GM to go bankrupt again.

    My target GM bankruptcy 2022, and this time we dump the pension on the pension guarantee board, cut pension by 30% and eliminate health benefits. GM survives! I will still be driving a Buick (imported from China) in 2023.

  40. Greg0658 says:

    Marcus @12:44am – “LOVE to buy an American made vehicle, but I can’t afford to throw away my money on asset purchases like the Fed does” … I hear ya .. my Voyager is rusting out, roof paint peeling and is at 220K miles (is that ok)

    point of post = can you afford to short circuit cash by sending it outside the USA thus killing the round’n’round effects of cash … and weaken your MIC too … just .. just that

  41. JSchmid says:

    Lets see … The cancer that caused GM to go bankrupt has not been removed, bad management and bad Union contracts.

    In fact the Union now has two seats on the board, GM shut down its most efficient plant and moved small car production to a less efficient facility due to Union pressure, they are selling the Volt at a cost that doesn’t work without a government subsidy that will be expired by then.

    This leaves out interest rates which can only go higher y/y. I am betting against you Barry!

    If GM is alive in 5 years it will have to have some sort of major management restructuring or find a way to break the union contracts.

  42. callistenes says:

    I got even money it was Keith.

  43. bigal says:

    GM will fold within 10 yrs. The core issue is the GM culture and that cannot be changed no matter how good the products and how many speeches are made otherwise. As soon as good profits return, the union and mgmt will return to their old behaviors and the downward spiral will return. Disclosure: I was a GM salaried employee during the good times.

  44. mndavids says:

    I think this is a very ambigous bet. At the end of 5 years BR & HF manager may have to go dutch for that dinner.

    Will GM need a reorginization within 5 years – very likely

    Will they actually have a reorganization within the next 5 years – probably not but that doesn’t mean they won’t need one.

    Will GM survive for the next 5 years – most likely.

  45. Cynic_FA says:

    The crowd is usually a great contrary indicator – but what is the crowd telling us about GM?

    I can’t figure it out. The stock was 6 to 1 oversubscribed, then they raised the price and increased the size. GM employees and retirees bought directed stock in around 90,000 accounts. FA’s at the major brokers (in Michigan at least, where I am) were screaming for more stock to meet retail demand. The stock goes up 8% in the first five minutes of trading. GM rings the bell at the NYSE and Dow surges 170 points. Does this all say the crowd is bullish – so short the GM stock?

    On the other hand: thousands of GM directed stock buyers sold the pop; very disapointing that they were just there for the $2 pop and sold out. Three of my clients wanted the pop (and I kept them in, which is a really bad sign). Comments in this thread overwhelming that GM does not go bankrupt, but they are still badly managed/how a greedy union/POS product. Even the people who said Barry is correct and GM will not go bankrupt said you could trade GM or short GM, but never love it.

    Does all this negativity point to a big move up in the stock?

    Here is a totally different bet Barry? You bet that GM survives 5 years (like the 5 year warranty on your Buick, it is sure to break down in year six) How about a bet that the government gets breakeven on the stock $55? I think the game is rigged. That is why they allow GM to carry pre-bankruptcy losses and they will not pay taxes for 5-10 years. That is why they have a no-strike clause and the union has secretly agreed to play nice so GM can look like a good government investment instead of bailout.

    I am going way out on the limb here – I will take the 100 to 1 bet that the government get $55 on the stock in three years and makes the big publicity statement “We got all our money back”

  46. willid3 says:

    i suspect the bet will turn out well. GM will still be around. will they need a reorganization? depends. do they get to having 50% of the market like they used to? not real likely. a lot of GM’s problem’s were to much success. and then they started believing they couldn’t make a mistake (not just a GM issue. every car company has hit this. and just about every company that has done really well has the same seeds of self destruction)

  47. Sechel says:

    The Volt will not be a “game changer”. How could it be? It requires a gov’t subsidy which would not work at all if it were done on a large scale. It is a small vehicle and of limited range. The only fact working in G.M.’s favor is the continuing trend of their competitors decontenting and ruining their cars. Look at Toyota reducing parts and quality, Honda and BMW ditching double wishbone suspension in favor of a multi-link set-up, making moonroofs non-standard and sharing more parts across their platforms(entry level and premium)

  48. [...] The backlash against the GM hoopla continues.  (Finance Trends Matter, Huffington Post, Big Picture) [...]

  49. rileyx67 says:

    Bot 1,000 shares GM on its debut and sold today for a $1,000 loss, so my comment suspect! THINK, re. Mark Wolfinger’s question, they still have those pension obligations, but DID get some significant concessions from UAW over next five years on current contracts, including “half” wages for new hourly workers, which, in Detroit now, might be inducing! The Chinese seem to love GM autos, and there apparently (even from above comments) are more Americans now willing to “Buy American” despite past mechanical issues compared to Japanese, etc.?
    Is a tossup with the “five year” bet, and Barry could well win THAT, but as Cynic__FA notes, how ’bout year six, when those contracts/concessions expire???

  50. Herman Frank says:

    Sorry, you’re going to lose that bet! VW just announced plans to invest $71 BILLION over the next 5 years in the development of new models and expanded (high-efficiency) production. Major spear point markets will be in Asia. So that is ONE of the competitors gearing up for serious battle. GM was never able to expand beyond the borders, living off the fat of high-margin trucks till that market tanked, taking their own reason to exist with it. One IPO which brings in $21bln – which is than divided between old and present creditors – doesn’t mean that the money is going where it should go. So this has been a “dead-cat-bouncing” phenomena. If possible, buy a nice and cheap out-of-the-money put on them and sit back.