GM stockholders 'wiped out'
JANESVILLE — Since General Motors declared bankruptcy, its stock is up 72 percent.
While the dramatic jump might be good news for day traders, it’s likely meaningless for the longer-term investors who bought stock in the company they either worked for or believed would never fail.
That’s because stockholders in the “old GM” will fade in the rearview mirror as the “new GM” drives out of bankruptcy with the federal government, the United Auto Workers and bondholders behind the wheel.
If they’re lucky, current shareholders might get through the bankruptcy with a 1 percent stake in the “new GM,” according to financial analysts. Such a small ownership stake would never allow existing shareholders to recover their losses, the analysts say.
John Berkley, a former GM worker and now a financial adviser with SII Investments, said he knows of plenty of people in Janesville—primarily GM employees—who held onto the stock for far too long.
“As far as that stock goes, they’re basically wiped out,” Berkley said.
That’s because common shareholders are typically far down the list of creditors considered in bankruptcy cases.
But GM’s is not a typical bankruptcy case, Berkley noted, adding that 100 years of U.S. bankruptcy rules are being rewritten for the automaker.
“Trying to predict what will happen with the ‘old GM,’ the ‘new GM’ is pretty difficult,” he said. “In this case, you’ve got the federal government with pretty deep pockets saying we’ll stand behind you, not let you go under.”
Since the bankruptcy declaration, GM’s shares were suspended and then delisted by the New York Stock Exchange. They now trade on the Over-The-Counter market under the symbol “GMGMQ.”
The ‘Q’ designates a company in bankruptcy.
The stock closed in normal-hours trading Thursday at $1.29, down nearly 19 percent from its Wednesday close.
Why would anyone buy what’s widely considered to be worthless GM stock at $1.29?
Because someone else might pay $1.50 for it today.
That’s the speculative nature of equity markets.
They are the day traders and short-sellers who might be buying and selling the stock in an effort to boost the price until the stock is canceled by the emergence of the “new GM.” Day traders buy and sell quickly in hopes of turning a profit. Short-sellers borrow stock and sell it, with the hope that they can later buy it back at a lower price, return it to the lender and pocket the difference.
“It’s crazy, very strange,” Berkley said. “If you’re not a complete expert in this, you have no business messing around with it.”
GM agrees.
The automaker issued the following statement at the close of trading Wednesday, when the stock hit $1.59:
“While GM does not control the market or its stock price, GM management strongly believes that any recovery for the common stockholders in the chapter 11 bankruptcy process is highly unlikely, even under the most optimistic of scenarios. Stockholders of a company in chapter 11 generally receive value only if all claims of the secured and unsecured creditors are fully satisfied.”
That means thousands of local investors, including GM workers, are holding worthless stock certificates.
“Unfortunately, the GM stock was such an emotional thing,” Berkley said. “People let their personal lives and attachment to the company keep them in way too long.”
Berkley said he had client’s buying GM stock when it traded at $15 per share.
“They figured it couldn’t go any lower, so why not?” he said.
But go lower it did.
Historical charts show GM’s share price at $36.70 two years ago. Between then and now, the chart is a steep cliff from a fairly steady stock that hit a high of $93.63 on April 28, 2000.
“People should have seen this coming from a company that’s basically cannibalized itself for the last years,” Berkley said. “You should have seen the trend, and trends are our friends.”
Berkley said some people are selling GM stock to lock in their losses for tax-deduction purposes.
But the others, he said, are just gambling.
Jun 16, 2009 at 8:44 p.m.
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Think i'l go out and buy a couple of blocks .
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GMGMQ.PK 1.33 +0.16 +13.68% 6/16/09
Jun 14, 2009 at 3:45 a.m.
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GM has been the stock traders DREAM equity!
The past two years it has been a stock that you just rapid fire, short sold. Covering every time it lost 30-50% of its value, just to re-enter your profits back into a short sold position again. Companies like this are the traders dream equities. Everyone who studies this knew the company would be bankrupt 2 years ago. It was just a matter of how long it wold take. Yet there was enough garbage put out there (as there always is with a corporate giant) to distort things, and and actually sucker people into believing the company was not going under. Much the same thing happened with Enron and MCI years back. It's just one of those rare situations where you sit back and cash in as the stock goes to pennies. Laughing at the ones who actually believe the nonsense put out in the press releases without even looking at the hopeless balance sheet.
I predicted on this blog and many others for over a year that GM common stock would go to zero. I also said to buy it the day before it went into bankruptcy when it was trading at about $1.00. Just a contrarian play to catch the very likely "dead cat bounce". It bounced up to over $1.50,. Just letting you cash in another 40-50% as if shorting it a few years did not make you enough.
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I also disagree with the guy from this article who says: “It’s crazy, very strange,” Berkley said. “If you’re not a complete expert in this, you have no business messing around with it.”....Trust me when I say many so called "experts" were saying GM was a great buy when it was in the $3-5 range. You don't have to be an expert to trade stocks or options. Just willing to take risk. If your not willing to take risk, then do not put your $$$ into equities!
Jun 13, 2009 at 11:14 p.m.
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truthteller: you hit part of the problem on the head. they tax our product beyond belief and yet, we hardly tax theirs. i've always believed, comparable product, comparable tax. has our government listened? HELL NO
Jun 13, 2009 at 9:11 p.m.
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Don't get me wrong- I don't blame the workers for making that much money. It's the management and the unions that should have put wages,benifits and pensions in line with other factory work rather than letting things get that far out of whack. Also I believe the feds should have put tarrifs on the imports to make things competive.
Jun 13, 2009 at 7:06 p.m.
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look at the amount of the bonuses the white shirts in detroit got each year. yet the factory workers get blamed. i'll tell ya, it sure wasn't the factory workers causing the high prices. i just hope the government puts a stop to ALL bonuses at the top. most don't deserve them.
Jun 13, 2009 at 6:05 p.m.
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10% labor costs didn`t bankrupt GM. They paid $3 a day in Mexico and charged the same price for those SUV`s.
Jun 13, 2009 at 4:41 p.m.
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Eksreigh- The wages are part of it but I don't think you can blame that for it all. The unions did milk things dry- that's for sure. Now since that the union and management are one in the same are the workers going to have to start another union? Don't laugh- I have talked with laid off workers that are getting there own little groups together.
Jun 13, 2009 at 4:24 p.m.
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rr1box14, sure I can stop by your house and you can write me up a good reference- Rural Route 1 box14? I'll look you up. :D
Jun 13, 2009 at 4:09 p.m.
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truthteller, I think you hit the nail on the head. Sure, the high wages and lavish benefits were great for workers, but in the end the excessive labor costs forced GM into bankruptcy. As you wrote, assembly-line work is basically unskilled labor. I wouldn’t begrudge a McDonald’s burger flipper $35/hour if his union forced management to pay it to him, and if the high wages meant the worker was able to afford a big SUV, more power to him. But if McDonald’s ended up filing for bankruptcy because Burker King paid only $8/hour, used higher quality meat in its sandwiches, and sold the finished product for a lower price, I’d say the problem lay with the McDonald’s union.
Jun 13, 2009 at 4:05 p.m.
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truthteller when you get out put me down as a reference .
Jun 13, 2009 at 3:49 p.m.
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rr1box14, I don't part my hair. I look like a wild man- have not shaved or cut my hair in twenty years. Just sitting hear in the joint lifting weights three times a day out of boredem. I'll be out in a year.
Jun 13, 2009 at 3:41 p.m.
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truthteller 4 dad 8 jr = 12 i didn't think i should have to separate them but for you slow ones, well you know where i'm going with this .
the rupubs and dems are both guilty but it seems people like to pick on Obama he is not a God . now lets talk about the way you part your hair
Jun 13, 2009 at 3:30 p.m.
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rr1box14, Bush was only in office for 8 years? Where do you get 12? Are you going back to his Dad? If so you have to count Clinton too and while were add it Bush Sr. was just carring on Reagan's policies so we might as well blame him too.
You guy's are nut's to blame this stuff on either party- this GM downfall started in the 70's with the first gas crunch and morphed into this whole mess. If you could go back in a time machine to fix this I think you end up in the middle of the Carter administration for the fix.......... Take resposability for this mess too- we all let this happen because of politics,greed, and the I don't care enough to do anything attitude. Unskilled workers making $75K a year? we all knew this could not stay this way forever.
Jun 13, 2009 at 3:11 p.m.
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matthew516
GM CEO Barack Obama will have a press conference to put people at ease with the recent, tragic news regarding GM stocks and their stockholders.................
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The Bush regime wrecked this Country in 12 years , what makes you think that Barack Obama
can fix things in a few months ? only a damn fool would believe that.
Jun 13, 2009 at 1:46 a.m.
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GM CEO Barack Obama will have a press conference to put people at ease with the recent, tragic news regarding GM stocks and their stockholders.................
Jun 12, 2009 at 5:29 p.m.
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It really hasn't been like falling off a cliff, more like a 10-year-long mudslide. But those people who bought at 15 were not exactly wrong -- it spent several months at around 10, but the final collapse only came after the credit crisis. It was clearly a company with huge structural problems, but until that point it would have been fair to say that they were on the verge of solving major parts of what ailed them (like the transfer of retireee health benefits). In the end, failing the credit crisis, they would probably have been able to muddle through again.
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But from an investor standpoint, way too many people hold stocks for the wrong reasons. It can be really, really difficult to acknowledge a loss and move on by selling the holding.
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