Will GM be worth more than Ford? The answer is yes. Based on yesterday's closing bond prices, since May 28 when the government gave an exchange offer of a 10% equity stake and another 15% in stock warrants, GM's $3 billion of 8.375% bonds maturing in 2033 jumped 72% to 12.25 cents on the dollar yesterday. GM's market value will be about $33.1 billion, compared with Ford's $19.9 billion.
Revenue for GM will probably come in at about $120-$140 billion. Last year the numbers were $146 billion for GM and $146 billion for Ford Motor Company (NYSE: F).
With federal help of $65 billion GM will shrink its debt to $17 billion from $172.8 billion. Ford's debt was $25.8 billion, excluding Ford Motor Credit liabilities.
GM will have a lower debt load than Ford and will be able to streamline its operations by closing about 40% of its retail outlets, shutting factories and slashing the number of brands in half.
Now, at this point all of this is conjecture. GM will have to demonstrate that it can cut the mustard when it emerges as the "new and improved" GM.
Would you buy stock in the new GM?
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Reader Comments (Page 1 of 1)
6-04-2009 @ 3:12PM
Chris said...
I think that the first auto bail out was enough of my money to give to them... I don't think I would ever buy a GM again because of this deal they are making. The greedy side of me though might throw some money into their stock just for kicks.
6-05-2009 @ 11:05AM
Thomas Behl said...
As an unemployed automotive engineer this is a moot point, but I would not buy stock in GM until I can see that they can not just compete with the transplants but actually beat the competition in the low cost to mid-range passenger car segment.
The bread and butter of the U.S. Auto industry, SUV's and Pickups, have often been the money makers for GM. This will continue if GM can correctly predict and manage the volumes. Even in this segment our new economy is going to make the task trickier than it has been in the past.
Now let's move to the segment of the market that has always been harder to make a profit at. The entry level to mid-range passenger cars. With falling incomes, tighter credit, and less optimism about the future more people are going to be less willing to fork over the $20,000+ necessary for most new cars. This is evidenced by the shift to used cars over the last couple of years. All of the U.S. Auto companies are going to have to move some of their best management and decision making talent from the profit making segments to the entry level passenger car segments.
Vehicles are available in China for about a quarter of the cost of our entry level vehicles. Of course these are not the same vehicles that we have here. They have different emissions requirements, safety requirements, size, and horsepower. But, in order to retain the way of life in this vast country for the people that are making less money and still want the freedom of the open road that many of us still dream of, the low cost vehicle is necessary. My first vehicle was a 1961 VW Bug (it was old when I bought it) with 40 horsepower. Today it can take 40 horsepower just run the alternator on an SUV. Can we get back to a 40 horsepower vehicle? Probably not, but let us set massive horsepower reduction as a goal for one segment of the market.
Just a thought, Tom Behl