GM & Ford: Should Investors Give Up On Them? - Behind the Wheel - Phil Lebeau

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Oct.07

9:12 AM ET

Tuesday, 7 Oct 2008

GM & Ford: Should Investors Give Up On Them?

Posted By:Phil LeBeau

Topics:Stock Market | CEOs and CFOs | Economy (U.S.) | Automobile Industry

Sectors:Automobiles and Parts

Companies:General Motors Corp | Ford Motor Company

Ford
Paul Sancya / AP
These are gut check times for Ford & GM investors. Shares of the two automakers slid to lows not seen since the early 80's for Ford and mid 50's for GM. As one Wall Street veteran told me, "These are dire times for Ford & GM."

Funny thing is, I think it's too soon for investors to throw in the towel on these guys. No, I am not a Big 3 sympathizer, nor am I on the take from Detroit's automakers (sorry conspiracy theorists). To me, it's pretty simple; these guys have no better choice but to hold on and hope their restructurings work.

Face it, Alan Mulally and Rick Wagoner have 3 options.

• Go bankrupt

Ain't happening anytime soon. They each have more than enough cash for the foreseeable future and are both aggressively working to slow their burn rate. Plus, a chapter 11 filing would destroy sales and the brands.

• Merge or sell out

This is a reach, even with depressed market caps. The only legit player who would approach either company is Nissan/Renault. Carlos Ghosn took a shot at GM [GM Loading... () ]and won't try again. He could try Ford [F Loading... () ]with the backing of billionaire investor Kirk Kerkorian. But for that to work, Kerkorian and Ghosn would not only have to pay a hefty premium to buy out the Ford's, they also take on Ford's massive debt

• Stay the course and aggressively work to preserve cash.

Even this option is a roll of the dice. Yes, both have enough cash right now to make it until 2010. But what if we're in the start of a prolonged bear market in auto sales? What if things don't improve until 2011 or 2012? I give both companies credit. They are working to conserve cash, and will sell more assets if they need to do so.

Bottom line: It may be easy to say, "Forget these guys, they've got no shot", but in my book it's too soon to write them off.

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