Quick GM Update

Just a very short note on GM: rumors are now flying that the administration is set to push GM into bankruptcy at the end of next week. All the pieces are coming into place. The company has reached an agreement with the UAW to cut health care and other benefit costs dramatically. While some have argued that this could enable GM to survive without bankruptcy, I see it as a precursor. With the union on board the government can now push ahead with a similar plan to the one used with Chrysler. The biggest remaining obstacle to progress will be the creditors, and I expect the administration to employ the same heavy handed tactics in the GM case that the used before. The two situations are not identical: the GM creditors have more strength, but the best way to force progress is to go to court.

Look for this to happen next week.

Addendum – Tuesday May 26th:

GM’s bonds are now trading at all time lows. Clearly investors are now expecting bankruptcy. Those bonds have fallen to extraordinarily low prices: they are now selling at just five cents on the dollar. Next stop zero?