GM news is bad, but don't sell shares yet

[Ming]

GM news is bad, but don't sell shares yet
By Jack Sirard -- Bee Columnist
Friday, March 31, 2006
www.sacbee.com



Q: I own 500 shares of General Motors that I have held for years and years. My brother has sold his shares, but I'm not sure if I should sell mine. What do you think?

A: Just when investors think that they have General Motors Corp. figured out, the company drops another bombshell.

One of the most recent came Tuesday when the automaker said it would restate almost four years of results for its GMAC finance unit, which certainly could hurt its ability to sell the division.

Investors have been banking on the expected sale of GM's 51 percent stake in GMAC to raise as much as $15 billion. If it happens, it would give the world's largest automaker a badly needed infusion of cash.

GM, which lost a whopping $10.6 billion in 2005 as its U.S. sales dropped and the costs of employee benefits rose, is going through a huge restructuring plan.

Earlier this week, GM announced it was laying off several hundred salaried workers and previously offered buyouts to its 113,000 U.S. hourly workers. The goal is to slash its payrolls by at least 30,000 in two years. GM also was hurt by news this week that auto parts supplier Delphi Corp., a former GM subsidiary that filed for bankruptcy reorganization in October, could face a strike over difficulties negotiating an agreement with GM and its unions to lower workers' wages.

With all the bad news, GM's stock is in the Dumpster. It closed Thursday at $21.06 a share, not far off its 52-week low of $18.33 and far below its high of $37.70 over the past year.

But as badly as General Motors has been doing of late, I wouldn't be tempted to sell - particularly if the only reason I was doing it was because my brother sold his shares.

People buy and sell for different reasons and yours may be far different than those of your brother.

In this case, the more that GM is in the news, the more I like it as something of a contrarian play.

Admittedly, it's not a good thing for investors when a company cuts its dividend in half like GM did. But doing so sure helps boost its bottom line.

And there's no doubt the company's plans to close plants and lay off both blue-and white-collar employees will save a bunch of money in the long term.

Unless you really need to sell the shares to raise cash immediately, I'd lean toward holding them in the hopes that the restructuring pays off for General Motors.

Source: http://www.sacbee.com/content/busine...15058020c.html

[desmo9]

If they ever go into bankruptcy, though, then kiss the investment good bye.

[member12]

I would have sold a while back...but I guess if you think they are not going bankrupt, buying some now (or when the stock gets a little lower) wouldn't be a bad idea. Its low...really low. One day if GM does well again, it might be worth something- but not anytime soon.

[GM-10]

Originally Posted by desmo9

If they ever go into bankruptcy, though, then kiss the investment good bye.

Well...uhhh...yes...by definition.

[ScottS]

I'd say at best, the reviews are mixed. http://finance.yahoo.com/q/ud?s=GM

[GM-10]

Originally Posted by Ming

GM news is bad, but don't sell shares yet
By Jack Sirard -- Bee Columnist
Friday, March 31, 2006
www.sacbee.com




Admittedly, it's not a good thing for investors when a company cuts its dividend in half like GM did.



Source: http://www.sacbee.com/content/busine...15058020c.html

There is a lot of research in the financial community that demonstrates that cutting dividends in the long run adds to substantial growth in the long run. This is simply because the cash that was saved can be invested in high NPV projects.

[Z28x]

As long as GM doesn't go Ch. 11 the stock is cheap and probably a good buy. It has a market cap of about $11 billion, if they can make $2B a year like Ford does some time soon the stock with have a P/E of just over 5.

[desmo9]

Originally Posted by GM-10

Well...uhhh...yes...by definition.

Well...uhhh...no...long-term shareholder returns are not, by definition, destined to plummet with a bankruptcy. But it's very likely as many companies tear up the old shares and re-issue in order to pay off creditors.

[GM-10]

Originally Posted by desmo9

Well...uhhh...no...long-term shareholder returns are not, by definition, destined to plummet with a bankruptcy. But it's very likely as many companies tear up the old shares and re-issue in order to pay off creditors.

You're right...I should have said ...99+% of the time.

[gmmakesmoney]

Just sell half of what you own....then buy it back at a lower price, if you're lucky enough before it goes up, if it goes back up at all

[Wario]

How many people work for GM? If they go bankrupt that would be a tragedy.

[desmo9]

Originally Posted by GM-10

You're right...I should have said ...99+% of the time.

My point is that even if rumors spread that they're approaching bankruptcy, and even before it were to happen and render the stock worthless .. current shares will decline as was the case with Delphi. So the point of this article, whether to hold onto GM shares, really fails to consider the threat of bankruptcy and the adverse effects. Even if bankruptcy never actually happens.

[timman]

Originally Posted by Wario

How many people work for GM? If they go bankrupt that would be a tragedy.

Don't forget that for every lost job 9.4 other people are affected.

[stormwatcher]

Originally Posted by timman

Don't forget that for every lost job 9.4 other people are affected.

I doubt a statistic like that. Does it also mean when someone gets a new job, 9.4 people benefit?

[importedtuna]

Something like that. When a new big company rolls in to town, how many little Subways, Dry Cleaners and Auto repair shops pop up? How many people is that one person with the job supporting? A wife and kids? Where to they go to eat, play and shop?