Is It Time To Short General Motors?
General Motors (GM) announced a $39 Billion loss last week. Considering that its Market Cap is around $18 Billion, that’s a loss that is twice the value of the entire company!
The CEO tried to soften the impact of the loss by claiming it was a tax-related, non-cash write-down. They were infact carry-over tax losses that the bean-counters insist GM consider as a loss. Typically, tax losses are carried as assets (or so I’ve heard) and are used to offset the tax impacts of profits.
But GM has had a loss in the past 19 out 20 years (I think I read somewhere that the losses totalled $275 Billion), its market share has been dropping every year and its losing money on every car it sold. The only money it was making was from its very profitable financing department GMAC that was used to finance cars and houses. But the financing profits are starting to dry up as the economy starts to fall apart.
Its being forced to borrow more and more money every years in order to stay afloat. And the cost of its interest is rising.
It seems the accountants decided that GM cannot make a profit in the immediate future and is likely to go bankrupt. So they forced the company to take the “non-cash tax-loss” as a write-down, since there won’t be any profits to write them off.
So I think its time to start shorting GM. I haven’t always had success shorting stocks. I shorted Countrywide (CFC) and WCI Communities (WCI) a few months too early and took losses, instead of large profits. So I’ll be a little cautious about entering the trade on this one, but I still think there’s a chance GM might infact go bankrupt.
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