Tuesday, December 13, 2005

GM- The Truth At Last?

I checked my blog posts to see when I first wrote about the GM situation. On October 18th, I first wrote of my expectation that GM is now in what will come to be seen as its death throes. With the title "Speaking Truth to Power," I questioned why so many media and brokerage analysts failed to seriously question GM's future viability, in the face of so much evidence of its travails.

Yesterday's downgrade of the company's debt by Standard & Poors may now give these parties the "cover" they seek to express their true feelings. According to today's Wall Street Journal story on the subject, S&P's rating of GM now places it in a category in which 5.7% of whose companies typically default within a year. So, now we have at least one quantitative estimate of GM's viability over the next twelve months. Since GM is involved with the Delphi situation, I stand by my belief, expressed many weeks ago, that the former will be merged, acquired, or in bankruptcy at the end of two years from now.

It is noteworthy that S&P, perhaps a more "neutral" analyst than many brokerages, is quite clearly concerned about the revenue and market-share dilemmas facing GM, rather than the company's self-diagnosed cost-control challenges.

What I now wonder is how much value in investors' portfolios has been destroyed by GM's roughly -19% return from October 18th until yesterday's closing price? How do the sell-side analysts defend their silence then, given this recent loss in GM's value? I don't track how many downgrades were issued, or when, by various analysts since mid-October. What I do know is that the media and analytic climate two months ago was one of relative silence in the face of what seemed pretty obviously the beginning of the end for GM.

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