A stinging quick rinse
Susan Tompor of the Detroit Free Press writes in a recent editorial that GM will have 30 days to detangle. President Obama calls it a “quick-rinse” bankruptcy. GM stock has tumbled as a result. Investors don’t see more cash advance loans coming from the Obama administration.
Brad Coulter of O’Keefe & Associates said that “the quick rinse sounds good; I just don’t know if it would really work.” The fast-track, pre-packaged reorganization plan the Obama administration appears ready to lay on General Motors is intended to erase debt and contractual obligations, but it has also never been done in this way before.
What would happen?
We don’t know for certain yet. Not until President Obama explains his intentions more fully. Some speculate that the federal government will specify exactly how much money will be made available for what creditors. Take it or leave it.
“We’re in new territory,” Coulter said. “Unless a lot of government funding were involved, I’m not sure how the quick rinse would work.”
No more bailouts?
President Obama has made it clear that the GM and Chrysler will have a limited amount of time to work with creditors, unions, and other stakeholders. They must fix the mess they’ve made by completely restructuring their business, which is no small task to complete in 30 days.
“It will require creditors to recognize that they cannot hold out for the prospect of endless government bailouts,” Obama said.
According to Tompor, General Motors is being offered “adequate working capital” for 60 days. However, share prices have dropped sharply. Ford stock fell as well, but not as much. What this most likely reflects is investors’ lack of confidence that GM and similar failing automakers can fix the problems they created.
Pennies from purgatory
Shadowing the fate of automakers’ stock, the Dow Jones was down nearly 300 points at one point the morning of the announcement, placing trading below 7,500 points. This does not appear to be an aberration, as such a pre-packaged bankruptcy deal would “not be good” the stockholders of General Motors. “Typically, the shareholders would get pennies on the dollar, at best,” Coulter said.
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I think “GM Stock” and “good” haven’t exactly been synonyms for a few years. The company was losing market share since 2004, and I doubt that anyone is going to be lining up to buy any Hummers ever again, no matter how reasonable gas might be right now, as it will not be staying that way.