"The economy is STRONG, and gettin' STRONGER..." - George W. BushWho'll Blink Over GM?
Our Wall Street editor explains the turmoil in its stock.
By Allan Sloan
Newsweek
http://www.msnbc.msn.com/id/10117463/site/newsweek/Talk about whiplash. Last Wednesday, General Motors stock touched lows not seen since the 1980s, and chief executive Rick Wagoner felt compelled to issue a statement to employees that the company has "absolutely no plan, strategy or intention" to file for bankruptcy. Early Thursday, GM hit another new low, then rose 17 percent in less than two days to end the week at $24.05, almost where it started.
Why the rough ride? It's not because of day-to-day changes in the company's fortunes. Rather, GM's market value has fallen so low that its shares have become chips for players (including hedge funds with arcane trading strategies) laying bets on the outcome of what can best be described as a three-way game of chicken—the game in which drivers race toward each other to see who'll swerve away first.
The players in this high-stakes game of nerves are GM; the bankrupt Delphi Corp., formerly GM's parts division, and the United Auto Workers, whose fortunes have eroded along with GM's. The UAW is threatening to strike if Delphi chief executive Steve Miller gets a bankruptcy judge to void its contract with the union and unilaterally impose cuts of more than 60 percent in wages and benefits. That would shut down GM's North American car operations, severely crippling the already-troubled company. But it would cripple the union, too, because many of the struck plants might never reopen. Miller, with seemingly the least to lose, will be seriously hurt if there's a catastrophic strike because he'd look like a corporate troll rather than his chosen role: The Man Who Saved Detroit.
Complicating matters is that GM guaranteed some pensions and benefits of UAW employees when it spun off Delphi in 1999. Miller is betting the UAW won't risk a strike and that GM, which can't afford one, will come up with enough money to make everything work. GM and the UAW each hope the other two veer off. The three played this game last month as Miller's deadline for a Delphi bankruptcy filing neared. No one blinked then, and bankruptcy followed.