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GM Shares Rise On Optimism

GM auto dealership with sign.
GM auto dealership with sign.

When a stock trades down around $2.50 a share it's dangerous to make too much out of a dramatic move up or down.

After all, just a week ago, when shares of GM got hammered and fell to levels last seen in 1933, people pointed out little had changed regarding GM's outlook. A week later, it's the same story, and yet, GM shares took off after the start of trading.

At one point, the stock was up more than 30% and had more than doubled in price in just one week.

Why?

There's no specific news driving GM higher today, though there is plenty of optimism following the announcement on Thursday GM will not need to borrow $2 Billion from the Federal government in March. Remember, in February when GM updated the Treasury Department about it's viability plan, the auto maker said it will need $2 Billion in March as part of a total increased loan request that could hit $16.6 Billion. Now, due to effective cost cutting and putting off some expenditure, GM says its liquidity is sufficient for March and it will not need another cash infusion this month.

As I said yesterday this news from GM is encouraging, but it doesn't change the long-range outlook at GM. The company has not said that it will need less Federal aid to turn around the business. After my blog yesterday, I got inundated with e-mails from people saying I'm not giving GM a fair shake for giving us positive news. My answer is that I'm giving GM more than a fair shake. It is certainly encouraging GM has cut costs and is doing a little better than expected. That said, let's not forget that GM is still in a very deep hole and digging out of it won't be easy.

When GM (or any other auto maker) starts to show that their long-term financial health has improved, I'll be the first to step up and congratulate them. Until then, remember that these companies - and their stocks - are in a precarious position.

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