The Market Wises Up About GM (GM)

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It has become just another trading day for GM (GM). Shares are up 11% to $4.09. Over the last two weeks, it has traded well above that level on several days. On December 8, the stock traded at $4.93.

What the market realizes just three hours after President Bush said he would shove money at GM (GM) and Chrysler is that very little has changed. The UAW put out a snide press release about how it was being treated badly. "While we appreciate that President Bush has taken the emergency action needed to help America’s auto companies weather the current financial crisis, we are disappointed that he has added unfair conditions singling out workers" the UAW chief was quoted as saying. In other words, we have no intention of playing ball when it is time to make cuts. We will take that up with Obama.

No one is going to play ball, at least not for now. There is an assumption, which may not be reasonable, that Barack Obama and his group will be softer on the car companies. They are worried about the ripple effects of job losses. They are less likely to sacrifice the industry to Chapter 11.

Fitch does not believe the sunny side of the picture of Detroit’s future. According to MarketWatch, "Fitch said that GM’s and Chrysler’s default is imminent. The ratings agency cut GM’s and Chrysler’s issuer default ratings to C from CCC, and said that the threat of bankruptcy still remains for both automakers."

GM and Chrysler may not have anyone to negotiate with. The stock price is indicating that there is little incentive for the union, suppliers, and creditors to come to the table. They want to see the next administration’s hand. They have the money they need to survive for the first quarter.

All of this will go right up until the end, and there will be another crisis with the companies running low on money again at the beginning of spring.

Douglas A. McIntyre