CSCO replaces GM in the Dow

by Marilou Long on June 1, 2009

in Credit Crisis,Debt

The futures are up strongly on the news of GM’s bankruptcy filing this morning.  The move was widely expected, and I don’t see how they could have avoided it with $82.3 billion in assets and $172.8 billion in debt.  The government is going to inject another $30 billion on top of the $20 billion they have already put in.  We’ve avoided the automakers for years, but now we all own a piece of GM and Chrysler.

This will be a controlled restructuring with the best assets being sold into “New GM” similar to the Chrysler restructuring.  Twelve plants will be closed, and the cost structure will be rationalized.  I think that a great deal of the pain will be felt at the dealer level.  The New York Times article linked above states that the company plans to close 40% of its 6000 dealers.

There shouldn’t be any market repercussions from settling the $3 billion in outstanding credit default swaps (CDS) on GM.  This amount is not in the top 10 of contracts outstanding, and again, it was widely expected.

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