GM seeks up to $30 billion in Aid: Fact?

by | Mar 2, 2009 | Asset Management, Stock Market Comments

This was the headline on the Associated Press on the evening of February 17th, 2009.  Is that a fact?

This is how the media distorts.  Pay attention.

So many investment decisions — made by investors, traders, mom & pop, everyone — gets determined by the headlines.

I am no fan of GM whatsoever.  I think their products are not very good, their cost structure is bloated and the executives should not get a bailout.  Lots of bad decisions over the years have put and the entire American auto industry in this position — this isn’t something that unfolded in the last few months.

But the media should be shot for their careless and sloppy reporting.  The distortion is maddening.

As a preface, GM is currently trading around $2.00/share.  The stock price is ALREADY TELLING YOU the company should be in bankruptcy.  Even if GM’s stock price were to jump 30% in a day (or even a week), it is still not hitting $3/share.

But the “early impression” I had from clients that had been in contact with me in these past 24 hours is that GM needs an *additional* $30 billion dollars.  Why?  Read the headline and first sentence from the Associated Press:

GM, Chrysler seek more government aid, to cut more jobs

The U.S. auto industry needs even more help from the government to survive than originally thought.
General Motors on Tuesday said it could need up to $30 billion from the Treasury Department to keep operating.

Unless you read the entire story, you would never know the actual numbers.

GM had already been approved for $18 billion in November, but only used $13.4 billion. They are now asking for $9.1 billion.  So they were originally approved for $18 billion and will need $22.5 billion.

By the way, buried further down is the point that the “new” $9.1 billion is not even actually cash, but loan guarantees.

What about the remainder?

The remaining $7.5 billion is an “emergency” line of credit GM does not expect to use, but wants to ask for and have lined up.  This is a “worst case scenario” (it’s already pretty bad) but this will cover expenses like bankruptcy costs, if it gets to that.

It’s the media’s job to sell newspapers, attract eyeballs to their TV channel or website.  Don’t forget that.

Join our Newsletter


Future-Proof Your Finances

Download the 25-Year Success Strategy

Enter your email & get this free PDF download to help you prepare for the next 25 years.  We will send periodic updates as well. Unsubscribe at any time.

You have Successfully Subscribed!

Share This