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GM Sinks Stocks As Obama Pans Auto Plan

March 30, 2009 RSS Feed Print

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As General Motors goes so goes the market, at least today. With the clock started on a new 60-day deadline for Detroit the threat of bankruptcy in the auto sector remains a distinct possibility. Meanwhile, the decision by the Obama Administration to force out GM chief executive Rick Wagoner sets an aggressive new precedent for intervention at the highest levels of companies accepting bailout cash. All major indices are off roughly 3.5 percent in afternoon trade. GM shares opened down more than 20 percent.

[See: Why Booting Wagoner Won’t Solve GM’s Woes]

Obama pledged the auto sector bailout would not resemble an "unending flow of taxpayer dollars" and said the government has "no interest in running GM." But after today that reality looks more likely, not less, given the sizeable hurdles automakers will face over the next two months. GM and Chrysler could face a "surgical" structured bankruptcy unless GM comes up with an acceptable continuity plan and Chrysler completes its pairing with Fiat within 30 days. Even then, GM bondholders and unions will likely face mounting pressures. Those groups are facing lots of renewed heat from White House car czar Steve Rattner, who is reportedly taking a much harder line in light of continued stark weakness in auto sales. Also, remember GM has $1 billion worth of convertible debt due June 1. Failure to meet any of the above obligations would likely trigger Detroit's most-feared "B" word.

Today's other shift is the administration's tougher methods for dealing with bailout recipients: Wagoner is out at GM after the government asked him to step aside Friday, and a large-scale board shake-up is in the works. The ouster of Wagoner will ripple through boardrooms at all the companies being bailed out by the Obama Administration (see: bank stocks, which are sinking today on those fears as well as weekend comments by Treasury Secretary Tim Geithner that banks will likely need "large amounts" of additional help from the government). The move is a sizeable expansion of the government's active presence at companies on its dole.

For consumers, there's a bit of good news in the form of government incentives for new car buyers. In his speech, President Obama said the federal government would back auto warranties and let buyers deduct sales and excise taxes, plus new incentives for buying new cleaner models. Obama's statement is here.

[See: 3 Ways Consumers Win In Obama's Auto Bailout]

Analysts remained skeptical of the auto sectors ability to avoid bankruptcy by at least one of the Big Three. From Merrill Lynch:

We continue to believe the day of reckoning for the U.S. automotive industry is rapidly approaching, which we expect will culminate in the “Big Bang” and include the recapitalization, restructuring, and/or extinction of at least one of the Detroit Three.

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He's too concerned with helping foreign car builders and offering energy efficient cars no one can afford!
He is punishing the thousands of actual GM workers, not the higher ups. And Pontiac out of all of GM cars were the ones that were better built.
Buy AMERICAN or shut up about the job losses. Lets instead ship millions of product from China based with lead to feed our children, our pets and for them to play with.
Lets allow illegals to come in and take jobs from the tax paying Americans! Open the borders, after all seem to be losing our constitiution.

Breth of OH 1:01PM April 29, 2009

it is pertinent that the US government bail out Gneral Motors ... this article reminds me of Chrysler back in the early 80's when my husband, went against all analysts and purchased Chrysler at something below $1 and ended up selling them years later for $135.
Back in the the 80's Chrysler went bankrupt by every normal definition of the word. It renegotiated its debts and restructured its organization in a way that greatly resembles a company going through Chapter 11 bankruptcy. Its creditors, like those of bankrupt firms, were forced to swallow sizeable losses.
We cannot allow GM to go bankrupt ... what will the US do without an auto industry ... it will descend to a level similar to that of a third world country ...

Shakun of NY 4:58PM March 30, 2009

When the auto industry has huge overheads for health insurance for the thousands of personnel , and even more for retirees that are receiving health benefits. It is no wonder their businesses can't make a decent profit. Their saddled with billions of dollars from a health industry, that have questionable practices. Isn't that why we voted for President Obama , to bring in a single payer health care system? Not with what we are going to get--auditors, not doctors in wealthy insurance companies dishing out limited services. Being a moderate voter I think one of the most important issues to get Americans back to work is Health care? Large and small businesses in this America have to negotiate with the middle man--Insurance companies!
They are the inter-mediator, we can well do without? If car manufacturing companies didn't have to pay extra for health care for it's hundreds of thousands of workers. Then we would be on a level-playing-field, with our foreign competitors who are subsidized by their governments? Why is it European countries like France, United Kingdom have a single payer system through the government that--WORKS! The usual critics have everything to gain, and so much more to lose--they will put every obstacle in the way of Universal health care. Before Britain was invaded by immigrants under the European Common Market, my family had excellent Social health care.
Every employer and every worker paid into the system and the outcome insured you of hospitalization, doctor visits, specialists, eye and teeth care. Then of course the majority of upper class Americans don't like the idea, because they can well afford the co-pays, premiums that the insurance companies add to their exorbitant fees. But then they get the best service, including home visits. The mechanics of health care in the US is no different to England's, including sitting in the waiting room and seeing the physician. If you needed to see a specialist you was referred by letter. The Democrats will state they are working for the American people, but for some that's an outright fallacy? It's unlikely we will never get rid of the greedy insurance companies--until we have taxpayer Campaign contributions for many corrupt politicians. Same with E-Verify for US Workers, because big business didn't like being cut off from cheap illegal labor. Of course the special interest lobbyists, will distort the truth to get voters to deny the 47 uninsured Americans (NOT ILLEGAL ALIENS) peace of mind--for--OUR--families and children.

Brittanicus of IN 1:51PM March 30, 2009