Monday, February 9, 2009

GM - Auto Bailout

GM and other car manufacturers have been getting bail outs across the world in various forms to attempt to stimulate the economy as was politically expected. However, as previously stated, although this action is expected, the anticipated result is a more gradual decline in this company rather than a "saving" of the company.

As long as investors keep their money away and as long as people don't want to buy cars, capitalists will continue to punish what they consider "broken business models". The view is that if GM can't stand on it's own, the temporary injection supplied by the government will only work to ease the pain of employees (and the economy at large). Once the metaphorical morphine drip runs out, the decline will continue.

Although much of this bailout takes the form of some kind of investment option, the government has a poor investment track record. But you also have to understand that government "investment" performance is not measured by profit as it is with the rest of us, but rather by social equity and development. Same thing with purchasing toxic debt from banks.

It is based on this that I would continue to rate the stock a sell.

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