IB Net Payout Yields Model

GM Target Set at $0

Not sure I've seen a analyst come out with a $0 target, especially on a DOW stock. According to this article, Deutsche Bank cut GM to 'sell' with a target price of $0. While Obama has already stated that he is behind some sort of help for the ailing US automakers, the pressue seems high that taxpayers not be impacted. These analysts seem to think GM might get a AIG type of deal where the shareholders are basically diluted out of existense. The issue is that any GM deal needs to get major concessions from labor to make them able to compete with the likes of Honda and Toyota. Otherwise, why not let them go bankrupt and see what happens to their labor deals. Constantly saving overpriced contracts will never solve the problem.

Either way, I'd stay away from the stocks of GM and Ford until this all shakesout.

  • While further government assistance would decrease the likelihood of a GM bankruptcy, we believe any government assistance would likely significantly dilute GM's equity," Barclays' Johnson wrote in a note to clients.
  • "Of the four broad options for government assistance for GM, we believe that political pressure to protect taxpayers may lead to a solution similar to the 1979 Chrysler bailout, which was accompanied by concessions from debt holders, labor, suppliers and management," Johnson said.
  • "GM equity could be interesting longer term, but we advise near-term caution given uncertainty on the structure of any potential government aid," Patel wrote in a note to clients.


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