GM's Stock "Paying" The Price For Bailout

General Motors
General Motors

Talk about getting a lump of coal in your stocking. GM shareholders must feel like the Grinch is in town with the way their stock is getting whacked. It's down roughly 33% since Friday. Ford stock is down more than 25%.

Friday's bailout may have saved GM (and by association, Ford) but investors are trading these stocks as if they are headed for bankruptcy. That's because when it's all said and done, GM will have to re-structure itself as if it were in bankruptcy. This means the company's stock, while it may not officially be wiped out, will be treated as if it were worthless.

Here's why. One way or another, GM will have to cut its debt by two-thirds. Those debt holders will never go along with that kind of plan, unless they see the company's stock get virtually wiped out. In bankruptcy, the shareholders are the last in line to get anything (and usually, it's nothing), so why should this non-bankruptcy restructuring be any different.

Is there a chance GM's stock can hold up? Yes, but many are betting against that happening. Look, GM bonds are trading at 16 cents on the dollar, there's little holding up for investors right now.

So as we head into Christmas and we watch shares of GM slide lower, don't blame the Grinch. This is the price stock investors are paying for GM being bailed out.

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