WTF?!? Ford and GM stocks already drove off the cliff. All we're fighting over now is whether to put out the smouldering wreck at the bottom.
Posted on 11/19/2008 1:13:22 PM PST by CutePuppy
No Auto Bailout? Investors May Just Say 'No Problem'
BAILOUT, AUTOMAKERS, BIG THREE, FORD, GENERAL MOTORS, GM, CHRYSLER, CARS, ECONOMY, STOCK MARKET NEWS
CNBC.com | 19 Nov 2008 | 01:28 PM ET
If Congress turns its back on the Big Three auto makers—as many expect—investors probably won't drive the stock market off a cliff.
Instead, some market experts see at most a brief selloff once news hits that Ford , General Motors and Chrysler won't be getting a bailout.
Market reaction otherwise could be muted, despite the big scare headlines such a development would generate—and worries among average investors (see poll below).
"The market believes the importance of General Motors and the Big Three to the country at this stage is significantly smaller than what the auto makers are trying to make out," says Jordan Kimmel, a fund manager at Magnet Investing in Randolph, N.J.
"This (bailout) would be throwing good money after bad," Kimmel adds. "And you're looking at a couple of organizations that for years have missed every kind of business clue, and I think that the country is OK with letting somebody fail at this point."
Kimmel says the auto industry would recover as foreign producers like Toyota and Honda open new plants in the US and consumers buy their cars instead. That, in turn, would prop up ancillary businesses, such as suppliers and maintenance shops, that count on the automakers for their survival.
Moreover, sending the companies into Chapter 11 bankruptcy might be their only hope, giving them the opportunity to reconfigure their business models while staving off creditors.
After that, the companies can move forward with at least some protection both for consumers as well as employees and pensioners.
"I do not see much risk because of the fact that it's not going to be in Chapter 7," says Michael Cohn, founder of Atlantis Asset Management, referencing the term for a liquidation bankruptcy. "Whatever happens will be either a bailout or will be one of those pre-packaged bankruptcies, in which case they continue operating."
The market's initial reaction likely will be to sell on the auto maker news, but a closer look at the situation on Wall Street probably will stem a full-scale panic.
"The issue is that the business can't continue in its current state," Cohn adds. "The question is, how do we pull it out of its current state? I see absolutely no risk in the industry failing as a whole in that it's too big to fail. The repercussions are too big."
And a bailout itself may not necessarily lead to a rally, he argues.
With confidence so low in the government's ability to fix problems by aggressive intervention—read, the financial sector collapse—investors may shrug off such a move anyway.
"Unless something really creative and really good is proposed to pull these guys out of the abyss, which no one believes is going to happen, the initial reaction is the 'sell' button," Cohn says. "It's a loss of faith, even in the (Treasury) printing presses. If they could dump money out of an airplane it wouldn't do anything."
More to Worry About
Besides, investors have plenty of things on their mind besides the crisis facing the Big Three.
Unemployment, housing troubles and continued pressure on the financial sector are every bit as much to blame for the current state of stocks as the problems with the auto industry, experts argue. In fact, there's debate about whether Detroit's ills are even the biggest issue among the market's various burdens.
"Certainly what's going on with the auto industry is grabbing a lot of headlines, but I also think there's a host of other factors out there," says Todd Salamone, vice president of research at Schaeffer's Investment Research in Cincinnati.
The auto stocks were down Wednesday, largely on belief that the hopes for a bailout were fading.
At the same time, the market sold off about in line with some of its recent declines. Analysts saw the drop related to the bad economic news of the day as well as the automaker troubles.
That's about what could be expected if the news is finalized that the bailout isn't happening.
"I wouldn't be surprised to see a quick reaction to any negative news," Kimmel says. "But the real question is, are you trying to create a healthy environment or are you trying to look at the next tick of the market? And that's what the decision has to be based upon."
Kimmel compares the auto makers situation to the Long Term Capital Management hedge fund bailout in 1998. That nearly $4 billion buyout is attributed by some to have contributed to the highly leveraged bank moves this decade that led to the credit crisis.
Formulating a similar government-funded rescue, he asserts, would send the wrong message to companies that take unwise risks with the belief that the government will be there to help should they fail.
"I think there was a day when what's good for General Motors was good for the United States. I think that day has probably passed," Kimmel says. "There are many more important companies than General Motors right now, and so there comes a time when you have to let somebody fail, and that sends a message."
© 2008 CNBC.com
Bankruptcy, not bailout!
Sanity from cnbc, who would have thunk it!
Raise your hand if you want to invest in the UAW and their extraordinarily brilliant bottom up business genius.
F and GM are already sold off. Direct impact would be minimal.
You know darn well there will be a bailout...of the UAW, of course, not the car makers. More tax dollars making the rounds from actual workers to the democratic party.
They still have a couple of reasonable people left, and they do occasionally lapse into bouts of sanity.
But what about all the millions of jobs at stake? And how will we manufacture military trucks for Obama to invade Pakistan to catch Osama Bin Laden? Look, maybe it wont work, maybe we will have to do it again in a few months, but these union employees and retirees are critical to this country. So we just need to hold our nose, shut our eyes and continue the gravy train for these loyal Obama supporters that make our country work. Yes, and we need open union ballots because union workers ‘make more’ than ‘non-union’, so we all should be union. (democrats talking points 2008)
Had a conversation with a (recently deceased) friend last spring, and his point was almost exactly your question. He believed that superior union workmanship and their input into the product mix would keep GM going on forever. I could not even make a point about union costs dragging the corp. into oblivion - he would cut me off in the middle of each sentence. Union-think in his case completely clouded the obvious.
WTF?!? Ford and GM stocks already drove off the cliff. All we're fighting over now is whether to put out the smouldering wreck at the bottom.
Their stocks have lost so much value they’re not even worth shorting.
One thing is apparent. Even tired old GM is more net savvy than the Republican party
whats the difference between this and corporate welfare?
Ain't that the truth! Lack of leadership, cohesiveness and ability to communicate will bring a sad and pathetic end result every time. And inability to learn from experience (2006) will compound it, they don't call 'em Stupid Party for nothing.
He was in the union before they killed the golden goose. At this point I predict Obama and his crats will execute the Golden Goose on 1-10-09. He is on death row.
Oh I don’t know the market is below 8000 you know known-testng the lows I guess.
Yes, the article describes the potential effect that "no bailout" news will have on stock market all that much, not effect on that companies' stock prices. Their capitalization is so small already that market indices won't feel it, so it might only be a slight emotional reaction. To paraphrase Hyman Roth in The Godfather II, they are "small potatoes" relative to size of the market.
... investors probably won't drive the stock market off a cliff. Instead, some market experts see at most a brief selloff once news hits that Ford, General Motors and Chrysler won't be getting a bailout.
I bought a new pontiac in may and a new gmc pickup in dec 06. I also have a 2003 gmc envoy and a 1997 chevy pickup. I also just bought the extended warranty for the pontiac in Sept.
I bought a new pontiac in may and a new gmc pickup in dec 06. I also have a 2003 gmc envoy and a 1997 chevy pickup. I also just bought the extended warranty for the pontiac in Sept. I like my GM products. I wonder homw many of the DEMONS own foreign products.
Feel free to drive your plastic Pontiac. It should have dawned on you by now why the American consumer, REGARDLESS of political party, have turned on the Detroit Three.
Alfred Sloan is rolling over in his grave over what the managerial midgets have done to his company.
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