Does anyone win in GM bankruptcy?

Posted by Don on May 31, 2009

So GM will file for Chapter 11 today and the government will have enough votes from the bondholders to approve the reorganization.  This deal is better than the original offer in that the bondholders get warrants for a possible additional 15% equity stake and the government is going to take a large portion of the new equity, and reducing their debt stake.

All of this said, in my opinion this company will be gone in 5 years.  The cost reductions from the union will help, but there will be suppliers go bankrupt and they will sell even less cars in bankruptcy than what they are selling now.  I think we have seen the beginning of the end of GM.

I don’t believe people will buy cars that are made in China and shipped here.  The one reason most people purchased GM’s were that they were an American car maker.  If they begin importing vehicles I would be better off buying a Toyota made in Texas or a Honda made in Kentucky.   I have never owned a vehicle that was not a GM, but I have to say I don’t think I can buy another one unless this company gets sold by the government.

The question remains who is going to come out ahead in this bankruptcy and who will come out behind.  Well from my point of view there are two camps.  To me the winners are GM’s competitors, and the union comes out better than anyone directly involved in this from what I can see right now.

Time will tell, but I have a bad feeling the US taxpayer is going to come out way behind on this.  The US will have to get $69 billion to get their money back, so their only option is to try and sell this company.  Over the last 10 years their best net income was in 1999 when gas was $1.00 per gallon and they were selling more SUV’s than they could count.  That year they made $5.5 billion net income.  If they could make this again it would take 2 years of this kind of earnings and then they could try and sell their stake at about 10 times earnings and get most of their money back.

For our sake let’s hope someone reigns in this company and we can get at least half of our money out of it in the future.  Full disclosure I own 100 GMS retail bonds.