GM Is Finished As Bankruptcy Nears, Shares Slide Below $1

Shares of General Motors (GM) are off about 20% today as all signs are pointing to the inevitable bankruptcy filing on Monday June 1st. The struggles in Detroit continue to drag down domestic Automakers but GM’s well-publicized cash flow problems and stand-offs with the Federal Government have led to its demise.

Unlike Motor City brethren Ford (F), GM was unable to reign in enough the costs that had been spiraling out of control as deals with the UAW and CAW only go so far. The cost-cutting pacts with the Canadian union and the ownership agreements with the US Union could not in the end support the business model without an infusion of outside help that wasn’t in sight. Italian car maker Fiat is still interested in GM’s European operations to the tune of a merger with the Opel brand, but without a leg to stand on, General Motors as this generation has come to know it, no longer exists.

The electric Volt will not save the company now, far too little and far too late, all that will happen now is a sell-off of assets to anyone willing to buy. Perhaps GM can pick up the pieces and re-emerge as a brand in-tune with a new generation of motorist, but as a company and especially as a stock in today’s market it is.

Turmoil at GM can only mean good things for competitors, with the company distracted by the slashing of assets, the brokerage of deals & spin-offs and the necessity of brazen survival for workers up and down the corporate chain, the only winners will be other car-makers.

Names like Ford, Toyota (TM) and Honda (HMC) should emerge with a stronger competitive advantage while luxury European brands continue to fight for the affluent customer throughout North America. Auto Stocks are all marginally higher today signaling that although one of the Titans of the industry has fallen, the car business will not go away and the remaining horses in the race will not slow down to pick each other up. What sometimes seems like a 0-60 sprint in the car business actually is and I expect the other big automotive companies to not pull any punches when it comes to advertising their strengths, and as is always prudent advice when it comes to investments: Stick with the strong.

Disclosure: Author owns TM

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