Would you buy GM stock right now?

Question

Do you agree or disagree with the statement below? What is your reasoning?

The government has told GM that in order to keep the bail out money they have now, they need to convert much of their debt to bond holders into equity. Doing this will dilute the share value of their common stock. GM currently has about 750 million outstanding shares. In order to convert the bond holders to common stock (if the bond holders agree to this) GM will end up with about 10-15 Billion shares. The moment this happens, the value of their common stock drops by 90-95%.


Would you buy GM at these bargain prices?

Answer 1

Best Answer - Chosen by Asker

NO. Bondholders will be given new (different from current) stock in the "New GM." The current stock will be cancelled and be worthless.

Asker's Rating:

Asker's Comment:

Sounds good. Thank you

Answer 2

1. Would you buy GM stock right now?

A: If you are buying and holding. No. If you are speculating and trading, that is your call. The risk is a total loss.

2. "The government has told GM that in order to keep the bailout money..."

This part is not entirely correct. Actually, GM has made no attempt to try and repay any bailout money. They have only asked for more and more and more money. GM has no money to repay anyone, hence, bankruptcy.

GM Bankruptcy Petition (06.01.2009)
http://online.wsj.com/public/resources/d…

The US Gov to control about 70% of GM, the UAW to control about 17.5% and bondholders/ creditors who should control all of GM are getting shot gunned (forced to settle) for 10% of GM plus some warrants. Canada will own 12% of GM (that is part of the US Gov's percentage stake - Thus US Gov 58%, Canada 12% ownership in a new GM).

"The UAW would have a 17.5 percent stake in the New GM. The Canadian government would own 12 percent and GM bondholders would receive 10 percent"
http://answers.yahoo.com/question/index?…

Most people balk at the gov's funding of this further bailout, which is nothing more than a bailout of UAW jobs in the USA and Canada.

"The latest Rasmussen Reports national telephone survey finds that 67% are opposed to a plan that would provide GM with $50 billion in funding and give the government a 70% ownership interest in the company."
http://voices.kansascity.com/node/4741

CNBC suggested today that it would be cheaper just to pay each UAW employee USD $1 Million than to further bailout GM.

I would argue you are correct to assume that the value of GM's existing common stock should drop to zero as there is not a single document supporting where current stock holders will get anything in the GM restructuring.

"In bankruptcy, GM will divide in two: a leaner "New GM" and "Old GM" -- which will include the parts of GM that will eventually be liquidated. GM said the split would be accomplished through what is called a Section 363 sale. The new GM assets would transfer to an entity owned by the U.S. and Canadian governments, the UAW and GM's unsecured creditors."
http://ca.news.yahoo.com/s/reuters/09060…

Thus if you buy GM, you will be getting the "Bad GM." ONLY the US Gov, UAW, Canadian gov, and certain GM Bondholders/ creditors will get newly issued shares of GM#2.

What is a "Section 363" Sale?
http://library.findlaw.com/2004/Oct/27/1…
http://www.wileyrein.com/publication.cfm…

Despite Obama's pledge not wanting to control the auto industry that is exactly the administration has been doing since Obama got into office.

04-29-2009
Obama: "I Don't Want To Run Auto Companies" (CBS News)
http://www.cbsnews.com/blogs/2009/04/29/…

"CEO Confirms Treasury is Calling Shots at GM"
http://blog.heritage.org/2009/05/11/ceo-…

***

ABOUT THE GM BAILOUT:
(supplement)

Obama Admin is using the $700 Billion TARP program to bailout GM.

06-01-2009
"There goes another $30 billion:
With GM set to receive another round of federal financing in its bankruptcy, the auto bailout is quickly becoming one the largest aspects of the TARP program."
http://money.cnn.com/2009/06/01/news/eco…

Keep in mind the purpose of the TARP was to bailout the failing banks in the fall of 2008.

01-27-2009
"Treasury Secretary Timothy Geithner's first big challenge is what to do about the $700 billion financial rescue program known as the TARP. Originally, the money was going to be used to buy up toxic assets from troubled banks. That didn't happen..."
http://www.npr.org/templates/story/story…

Not only is GM being bailed out with TARP so is GMAC:
http://www.bankrate.com/finance/auto/aut…

GMAC was not previously eligible for TARP money until 12-2008 when the FED allowed GMAC to change its charter to become a "bank holding company." Then GMAC had legal access to TARP funds. Once GMAC got bailout money they lowered their credit standards for people to get car loans.

"...in the wake of the credit meltdown, GMAC raised its minimum credit score for borrowers to 700. After the government injected its first chunk of capital earlier this year, GMAC lowered those scores to 621."
http://www.bankrate.com/finance/auto/aut…


The intention of the TARP is in question. It seems that that the TARP is becoming nothing more than a giant government credit card line to be used as they see fit.

Instead of paying off this $700 Billion TARP debt which many banks want to do now, Treasury Secretary Geithner recently stated to Congress that the Treasury can just reuse the TARP funds for other purposes:

05-20-2009
"Geithner: Law Says Treasury Can Recycle TARP"
http://news.morningstar.com/newsnet/View…

TARP has been a tool for government control over financial institutions (such as banks, insurance companies, and other finance companies such as GMAC), and now the US auto industry. How far with the gov expand the use of TARP?

05-21-2009
“The TARP Bailout Parade: Is California Next?”
http://blog.heritage.org/2009/05/21/the-…


So,
Would it be a good idea to buy GM stock right now?
http://answers.yahoo.com/question/index?…

In a word: "no."

"GM’s current stockholders would get no recovery from the new-entity asset sale, according to the filing, a change from an earlier plan to give them 1 percent of the new company."
http://www.bloomberg.com/apps/news?pid=2…

FYI:
Blog Now Contains everything you wanted to know GM et al in my 12 month post history on the subject (to below date).
http://profiles.yahoo.com/u/CUXTCCBSBYDZ…

<06-01-2009>

This is GM Post #53

Source(s):

--- Finance & Risk Management Consultant
--- 20 years in the markets (see bio for more. add me to view post history)

Answer 3

No...josh pretty much said it. They already filed for chapter 11 bankruptcy and the company will be restructured. The only read it went today is because of speculators/inside traders...stock is worthless. Ford is a better option of the big three, if you really want to go into us auto stocks.

Source(s):

http://alpha-investing.com/

Answer 4

No, GM just declared bankruptcy, meaning their stocks will become worthless. Even if you are planning on "buying low," you're investing your money in garbage, in my opinion. Companies that cannot make money declare bankruptcy.

Answer 5

It makes nice wallpaper.

Answer 6

no i would rather stick my tongue in a blender going full speed.

Source(s):

abe

Answer 7

GM will not be traded soon !! S&P 500 will be removing it from its index tuesday after trading..DJI will be taking it off too...cant buy what u cant trade