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.
