Last week in a post I linked Bloomberg columnist and money manager John Dorfman's positive view of General Motors (GM/NYSE). Now comes Jerry Flint of Forbes giving his emphatic view of GM:
Enough already on General Motors and Bankruptcy. I am tired of the B-word. GM isn't going bankrupt this year; GM isn't going bankrupt next year; 2008 is so far off that even Bill Gates could be bankrupt by then. It's dangerous to go three years out, but no, I wouldn't expect GM to go bankrupt in 2008, either.
And why not? Here's Flint's answer:
The company has $19 billion in the kitty and just about $100 billion in the pension fund. But there's more here than the balance sheet. When I was a boy, there was one reason companies went bankrupt: They couldn't pay their bills. GM can pay its bills, so that's not a problem.
The new reason for bankruptcy is to break a union contract. That works with airlines because there are always some Navy top guns who owe on their Corvettes and will replace your striking pilots. And there are lots of women left to replace your striking stews.
But replacing 150,000 United Auto Workers members is another story. A judge could tell them to work for 10 cents an hour, but it's still a free country; they can strike, and they would. Plus, they are stronger than the company. The workers own paid-up houses, cars and boats and have working wives (or husbands). GM would have to negotiate any change in the contract, so the bankruptcy ploy just doesn't work here.
People can agree or disagree with Flint. But he's been covering the auto industry since 1958. So he's been around the block a time or two and well worth reading. And read this piece you should. And, lest you think he's being a cheerleader for the company, Flint suggests things could get interesting for Rick Wagoner later this year:
If a turnaround at GM isn't evident by fall, look for a management change. But enough of the bankruptcy talk.
Hey, I'm upfront about the fact I'm underwater with GM. The stock was recommend on this site last April 29 at $29.75 a share. It closed yesterday at $24.34. (I'm personally doing even worse. I first purchased GM at $37 before this blog was launched. My average cost is in the low $30s).
That all said, I've maintained the GM holding in the portfolio. I didn't add to the position when the stock was trading in the teens because it's a already a large holding. If that changes, you'll read about it here.
In the meantime I remain cautiously optimistic. I may be a fool, but time will tell.