Investing Blog

As I sit here with the headlines, GM’s $15.5 Billion loss strikes me as one of the biggest problems facing the US stock market and its own existence. There are so many variables in the failure of GM to keep up with the automobile market. Their pension programs grew far too big, far too fast, the majority of their top selling cars are gas guzzlers and now they’re taking a huge hit just to bring back their off lease cars trucks and SUVs.

The business model behind GM would have, and did, work great in the 1950s when buying American was a key priority. Today, GM is simply priced out of the market, they’re incurring huge debts to be able to stay afloat but when the bills come due their cars will have to come with a $4000 tax just to cover their debts and pension programs.

I think the collapse of General Motors will come with time, their products aren’t in demand and they’re drowning in their own inventory. Without a fire sale of their trucks and SUVs (mostly at a loss) getting rid of this inventory will take years. Then comes the switch from gas guzzlers to gas savers which would take billions more to restructure the factories.

The best way to play General Motors demise isn’t in shorting it, there is still too much interest trying to keep GM afloat. January 2010 put options on GM with a $10 strike are selling for $5.25. The market has already priced in a 50% drop from today’s price. The best way to play GM will be an investment in another automaker, Toyota would be preferred. As GM’s marketshare sinks it will have to go somewhere, I’m guessing to Toyota which produces automobiles from large trucks to small cars and even hybrids. Toyota is well positioned to take the wind right out of GM’s sails.

Investing GM