Investing Blog

Surely we can all remember the Reagan bailout of Chrysler in the 1980s and the talk is that the democratic presidency might feel some pressure to start working with US Automakers. Democratic challengers are a favorite with unions, especially with industries that are considered “American.” There is no business out there in a need of some financial help than the US automakers, while it would probably not be a sound financial decision for a country so heavily in debt there is going to be some pressure from politicians and union directors alike.

Remember Kmart and their quick exit and re-entry into the retail business. They ridded themselves of debt and shareholder equity then quickly came back as a business ready to bustle. They’ve done great since filing for chapter 11, their stock went from mere pennies then even moved to be healthy enough to buyout Sears.

Unless automakers pull a switch up like this to their employees and creditors the chance of recovery is extremely slim. The only thing holding back GM and maybe even Ford from bankruptcy is pride, but the problem is that consumers aren’t willing to subsidize pride with an economy going down the tubes and gas as high as $4 per gallon all around the country.

If GM is willing to cut the ties with pension programs and union workers, they might be able to pull a Kmart recovery. But without screwing some of their employees and creditors, it simply won’t happen. They’ve got billions in assets in US factories but little to back up their currently high debt.

A bailout could happen which would be the ultimate wildcard in the stock market. If the US government comes to bail out the automakers by paying off their debts, it might just be possible to turn a profit. Their biggest expenditures are naturally pension programs and interest on accumulated debt.

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