GM and Chrysler were the talking points for President Obama today, and as a direct result, GM stock and Chrysler stock prices plummeted, while interest in Fiat rose. Take a closer look at governmental browbeating of automotive industries.
President Obama Issues Ultimatums to Chrysler and GM
President Obama alerted investors today that Chrysler Company’s viability was directly related to the company finding a partner. Knocking at the gate is Fiat – known colloquially as the company that inspired the saying “Fix It Again Tony” – and President Obama allocated 30 days for Chrysler to work out an agreement with Fiat. GM received 60 days to turn its ailing company around. It is unclear what would happen on days 31 and 61 respectively, although Chapter 11 bankruptcy is a hinted at option.
Stock Market Drops as GM Stock and Chrysler Stock Prices Plummet
The Street reports that President Obama’s announcement this morning did little to calm already jittery investors, and the overall stock market dropped by about 3.5%. NASDAQ, S&P 500 and the Dow fell in an eerie concert. GM stock itself dropped by 14%
GM and Chrysler Stock Drops put in Question the Wisdom of the Administration’s Morning Pronouncement
It does not take a stock market wizard to draw a map and connect the dots for the average investor, and when President Obama announced that both GM and Chrysler were potentially headed for bankruptcy protection — unless they shaped up — the sounds of tumbling stocks could be heard on and off Wall Street.
Reuters is straightforward about the perception the Obama announcement made around the world and simply refers to the pronouncement as a governmental takeover of two of the auto industry’s giants, while also asserting that the resignation of GM’s CEO was the direct result of the Obama Administration’s pressure exercised by Steven Rattner and his panel. There is no record of Rattner or his panel exercising any pressure on the union head, causing pundits across the board to scratch their heads.
It is interesting to note that this sentiment continues unabated in spite of President Obama’s protestations that the government is not taking over GM and Chrysler, merely standing behind them, a fine distinction that is apparently lost on the Canadian/British news agency.
The Law of Unintended Consequences
As the Chrysler stock price goes down and GM is not looking much better, the stocks of automotive parts suppliers are also suffering. So what about Fiat? If you believe Business Week, then Fiat is not the panacea Chrysler needs to keep going; part of the problem is Fiat’s own solvency issue.
Fiat suffered a stock drop of 12% after it revealed that its fiscal forecast was about one third too rosy and its accumulated debts three times higher than initially suggested. The advantage of the Fiat Chrysler deal is the fact that Chrysler can use Fiat technology to build smaller cars in the future, making it a somewhat more attractive investment.
This of course would place Chrysler Fiat in direct competition with Toyota and Honda, and it is anyone’s guess if American audiences will stay faithful to a partially American name or Toyota’s reputation of engineering cars that virtually run forever and a day.
http://www.thestreet.com/story/10479246/1/stocks-sink-as-carmakers-banks-drop.html?cm_ven=GOOGLEN; http://www.reuters.com/article/usMktRpt/idUSN3035193220090330; http://www.businessweek.com/autos/autobeat/archives/2009/01/cash_strapped_f.html