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General Motors (NYSE: GM ) , as we know it, is dead. It died this morning. It was Fritz Henderson, with the wrench, in the courtroom.
That's not exactly true. GM isn't all the way dead -- just reorganizing under Chapter 11. There's also no murder mystery. GM's death was brought on by natural causes, pure and simple. Not that it matters whose fault it was. GM has finally crashed, and we all lose.
As expected, GM filed for bankruptcy protection in a Manhattan court at 8 a.m. today. (View the filing.) Under the close eye of the Obama administration, benefits will be slashed, assets sold, dealerships cut, factories closed, and huge losses taken by bondholders and shareholders. All signs point to current shareholders being completely wiped out.
The U.S. government, which is pouring on another $30.1 billion in financing to help GM get through this period, will own 60.8% of the "New GM." The Canadian government, apparently just as eager as ours to throw good money after bad, is putting in $9.5 billion in exchange for an 11.7% stake in the "New GM." The UAW's health-care trust will own 17.5%, while creditors will own 10%.
If all goes according to plan [insert laugh track here], GM won't belong to the government for very long. The President's aides have spread the word that the administration wants to get GM back into the hands of private investors (read: sell it) as soon as reasonably possible. The tentative time horizon is something like six to 18 months. Most likely, that would involve an IPO. Will the new GM be something you want to invest in? Check back with me in six to 18 months.
So who wins here?
Save for a few attorneys and investment bankers, no one wins. Shareholders, bondholders, the UAW, dealers, taxpayers – they all lose. And the losses don't stop there. Consider auto-parts suppliers like American Axle (NYSE: AXL ) , which counts GM as a core customer. Now consider their suppliers, and so on. The knock-on effects of GM's scaling back of capacity will be severe, lingering, and lasting.
But don't competitors win here? No, ironically. A GM bankruptcy is terrible news for crosstown rivals Chrysler and Ford (NYSE: F ) and Japan-based automakers Toyota (NYSE: TM ) , Honda (NYSE: HMC ) , and Nissan (Nasdaq: NSANY ) . Like the Six-Million-Dollar Man, GM will emerge superior in nearly every way from its near-death experience. GM's cost structure will be far leaner, which will give it much more wiggle room on competing on price. That's hardly good news for the likes of Ford and Toyota. And remember those parts suppliers? A lot of them also happen to supply GM's rivals. If any of them fail, GM's rivals could suffer right along with them.
There are plenty of questions here. Who actually controls the U.S. government's stake: President Obama, or Congress? Doesn't the government owning our largest automaker open up a rat's nest of conflicting interests? Doesn't this all just feel icky?
And what of GM's shares? I want to be crystal-clear about what GM's shares will be worth in very short order: Zero. Zilch. Nada. Zip. $0.00. Common shareholders are dead last on the totem pole of bankruptcy prioritization, which usually means they get nothing in a reorganization. If bankruptcy investing is new to you, I highly recommend this classic by fellow Fool Bill Mann: "When Companies Go Bankrupt."
If you own shares of GM, you should sell them. They're effectively worthless. Obviously, you also shouldn't be buying any shares of GM. These shares will be cancelled in short order, and you almost certainly will not receive new shares in the New GM. Again, please consult Bill's piece.
Don't be that guy who invests in the stock of a bankrupt company. It's as close to a surefire complete loss as you can find. And if you know someone who is thinking about becoming that guy, be a good friend and steer them clear.
I wish I had something happy to say here, but I don't. This stinks. Who knows, maybe we'll get lucky and the government will be able to flip GM for more than it has sunk into it? Maybe the Chevy Volt will be a smashing success? Maybe GM will redeem itself?
Maybe, maybe, maybe. I guess that's the thing about investing stories: They don't all have happy endings.
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