Time is running out for the Detroit Three, especially GM. Without some form of financial aid, GM may not survive until Congress reconvenes in January. The clock may have struck twelve for GM today as the Senate announced that a vote on aid to the Detroit Three this week.
Up until now I was of the opinion that GM would get some kind of rescue and although GM bondholders may not be made whole, GMAC bondholders may me made whole or, at least receive a recovery at similar levels as recent trading levels. Now I am not so certain. There is too much inflexibility on all sides. Congressional Democrats what the Detroit Three to come back with a plan which returns them to profitability, but preserves all UAW jobs and a mandate to build so-called "green" cars, consumer demand be damned. Detroit CEOs want no meaningful change to their corporate cultures and the UAW will make no further concessions of wages, benefits and job cuts.
Owning GM bonds may be a play on bankruptcy recovery. Owning GMAC bonds is a bet that GM continues to build cars, inside or outside of bankruptcy. What should investors do? If I owned GM bonds I would sell. If I owned GMAC bonds, I would hold on and pray. If I was at or near retirment age, I would drive away laying rubber all the way.
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