November 11, 2008

In the end, GM shareholders might get stuck with nothing

Analyst sees 1 year for stock

BY SUSAN TOMPOR
FREE PRESS COLUMNIST

Could General Motors Corp. — and all those Chevys and Cadillacs — soon be worth absolutely nothing?

OK, we all know nobody’s going to hand over the keys to a Cadillac CTS for free, let alone a whole car company.

But even the most loyal GM shareholders must take a whiff of the exhaust fumes and recognize that it is possible that one day their GM shares could be worth nothing under some dire scenarios.

On Monday, a Deutsche Bank AG analyst downgraded GM shares, saying the stock might be worthless in a year or so.

GM stock tumbled nearly 23% on Monday to close at $3.36 a share, down $1 a share. A year ago, GM traded around $30 — not $3. Since last November, GM has lost nearly 89%.

Understand, zero is one man’s number.

John Butters, research analyst for Thomson Reuters, told me Monday that other analysts had target prices on GM stock ranging from $1 to $8 a share. What’s more essential to understand is why Deutsche Bank is so down on GM.

"Even if GM succeeds in averting a bankruptcy, we believe that the company’s future path is likely to be bankruptcy-like," Deutsche Bank’s Rod Lache wrote.

Yes, folks, shareholders could get nothing if GM goes bankrupt or gets a bailout.

A government bailout, as I’ve said before, is not a rescue plan for shareholders. Ask anyone who owned shares before bailouts of American International Group Inc. or Bear Stearns.

Christopher Ruth, chief investment officer for Comerica Asset Management in Detroit, said Wall Street is concerned about how a bailout could look for GM. It could be a loan guarantee in which shareholders might eventually make some money. Or it might involve the government taking a huge stake in GM’s common stock and GM preferred stock.

If that happens, shareholders could be out of luck.

"Deutsche Bank is jumping to the conclusion if the federal government gets involved here that ultimately they’re going to wipe out the shareholders," Ruth said.

What do you do? GM shareholders and bondholders may want to hedge their bets, depending on their tolerance for risk. If the stock hits zero, it’s better to have sold some at $3 or $4 or $5.

Nobody knows what will happen. But unfortunately, we need to prepare for things to get ugly — bailout or no bailout.