General Motors Is Headed For Bankruptcy – AgainForbes: President Obama is proud of his bailout of General Motors. That’s good, because, if he wins a second term, he is probably going to have to bail GM out again. The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market.
Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company. It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday. This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.
Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share. However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow.
To continue with the Forbes Article: “It’s doubtful that the Obama administration would attempt to sell off the government’s massive position in GM while the stock price is falling. It would be too embarrassing politically. Accordingly, if GM shares continue to decline, it is likely that Obama would ride the stock down to zero.”
Chevrolet is not a premium brand, like Mercedes or BMW. Since the 1920s, Chevy’s essential market positioning has been “more car for your money”. Unfortunately, the 2012 Volkswagen Passat is more car for the money than is the 2013 Malibu. There will not be anything that GM will be able to do about this for the next five years other than to reduce the price of the Malibu by offering “incentives”. This will eat into the company’s profitability, which is already weak. (Forbes)
What is the chance that GM will (against all logic) recover?
One way to answer that question is to compare the 2013 Chevy Malibu against the 2012 Volkswagen Passat, as Car and Driver did. Results: VW, first out of six; GM, dead last. (Forbes)