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Monday, March 30, 2009

U.S. Government Forces out GM's Rick Wagoner... What's Next for the Ailing Auto Company?

Today the U.S. forced out Rick Wagoner of GM as well as most of the other directors. This is the most drastic government involvement in the private industry since the beginning of the financial crisis. What is next may be that the U.S. Government forces GM to file chapter 11 bankruptcy, hurting all of the bondholders, creditors, and of course shareholders. This comes just days before GM and Chrysler were required to submit information about where their restructuring programs are heading. The United States has held off their threat to force a chapter 11 bankruptcy but they demand to see the UAW and Bondholders make further concessions. This is quite difficult because the UAW are stating they have made significant concessions, and that the bondholders have not made any, while the bondholders are saying they will make concessions after the UAW makes further concessions. I think it's time for both sides to wake up and realize, if they don't both make many more concessions simultaneously, they'll both lose anyway! Almost certainly GM will need to dilute shareholders by issuing more common equity up to two-thirds of their debt.

Chrysler may also be forced into bankruptcy if the deal between them and Italy's Fiat fall through. On the other hand the government may invest up to 6 billion more in Chrysler if they can work out a deal with Fiat. This has been quite negative news for the stock market futures. The Dow Jones Industrial Average (DJIA) futures are down 107, NASDAQ futures down 18.75, and the S&P 500 futures down 12.90. This is not a good indicator for the bulls with the futures down this much at 12:27 AM.

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