General Motors Corps. (NYSE:GM) , currently at $1.71 has fallen since its closing on Friday at $2.04. That’s already down 16%! What’s the reason? Yesterday, the Times reported that the U.S. Treasury has directed GM to prepare to file for bankruptcy by June 1. GM has accepted $13.4 billion in federal bailout funds and has asked for at least $16 billion more. Last month, President Obama had forced former CEO Rick Wagoner to resign, and then later setting a deadline for the company with an acceptable new plan (more info discussed in my previous blog on Tuesday, April 7, 2009)
A possible plan, however, might be to split GM into a “new” company made up of their most successful units, and an “old” one of its less-profitable units. In addition, any attempt at a “quick” bankruptcy for GM could face legal challenges from bondholders of GM, as the bondholders are now preparing a case against the bankruptcy plan. Obviously, the bondholders are worried that the process would lead them to end up losing hefty losses on their investments. Common stockholders, in this case, would lose almost all of their investments, if not everything. Probably not a great idea to invest in GM now but might be a good idea to sell your shares, should you own any. Better to get $1.72 per share than nothing at all.
The issue here now is that if GM files for bankruptcy, this has a good chance of causing Chrysler LLC to break down and accompany GM in bankruptcy.
Ford Motor Co (NYSE:F) is the only one of the Detroit Big Three automakers that did not take federal funds and is doing the best out of the three.
