Weekly international investment round up to 2 June 2009
• Former largest company in the world files for bankruptcy
• A leaner and meaner GM is set to emerge
Once the biggest company in the world, on Monday General Motors (GM) became the largest manufacturer to ever file for bankruptcy. As suggested in last week’s article GM finally ran out of fuel following months of going around in circles in a failed attempt to avoid the unavoidable.
Founded just over a 100 years ago at a time when there were only a few thousand cars on the roads, GM rose to astounding heights through iconic brands such as Cadillac and Chevrolet, peaking in the 1950s when it enjoyed more than half of America’s total car market and out powered other brands throughout the 1960s with the introduction of ‘muscle cars’ such as the GTO.
The last couple of years have seen this giant left floundering around after being unable to adapt quickly enough to the changing needs of the modern car consumer however, this inevitable decision has been widely welcomed by the investment markets.
While at first appearing to be some kind of horrible car crash with few survivors it may actually be that by filing for bankruptcy it now has the best chance to emerge leaner and meaner from this enforced pit-stop ready to take on all challenges.
That’s not to say there aren’t any losers. Thousands of workers are likely to join the already unacceptably high US unemployment figures while those share and bond holders who stuck with the company are now left seriously out-of-pocket. And case number 09-50026 filed with the ‘Bankruptcy Court for the Southern District, New York’ shows GM to have more than 100,000 creditors the largest of which is Wilmington Trust Co., collectively representing bondholders who are owed $22.8 billion. Canadian car-parts maker, Magna International, which is forming part of the group likely to buy GM’s European Opel operations, is owed over $26 million.
Chapter 11 bankruptcy rules in America aim to give companies time to restructure their finances while being protected from their creditors therefore it is likely that after ridding itself of unprofitable brands such as Hummer and Saturn the new GM ‘lite’ will emerge again over the next two to three months to continue producing versions of its most popular and updated brands.
Whilst eyes have naturally been focused upon GM’s problems in America and Europe it shouldn’t be forgotten that the GM is still the largest overseas automaker in China and that this market offers the company its best hope for the future.
GM employs over 25,000 workers in China and sold 1.09 million vehicles there last year alone and it will surely aim to substantially increase these numbers in the years to come. Cleverly, GM has partnered itself with China’s largest carmakers such as SAIC Motors and therefore its problems elsewhere are having much less of a negative effect on this particular growing car market.
Throughout 2006 GM saw its share price increase by an amazing 52 per cent only to spiral downwards ever since. Reinvented and backed by the Amercian tax-payer don’t be surprised in the future if this genetically modified phoenix is once again vying for pole position.
Mark Lamb is Head of the Life Dept. at Citadel Insurance plc which is authorised to carry on general and long term business of insurance under the Insurance Business Act, 1998 and is regulated by the MFSA. Contact by email; [email protected] Tel; 25579000. Website; www.citadelplc.com
This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.
