The big news today is the testimony of America’s car industry as CEO’s of General Motors (GM, $2.60, down $0.49), Ford (F, $1.45, down $0.23) and Chrysler are pleading their case for a $25 billion bailout before the House Financial Services Committee.
The testimony is endearing and heated at the same time but the market is acting like the support is not there. GM and Ford shares are at fresh 52-week lows. GM says it could need $10-$12 billion but its CEO was squirming like a kid in church when directly asked exactly how much they will need to survive until March 31, 2009.
These companies are asking for a bridge loan but a lot of people in Congress are asking what exactly is on the other side of that bridge? The general consensus is that even if the bailout is approved, these companies are just delaying the inevitable which is bankruptcy.
While these companies may have been aggressively cutting costs, scaling back production, and putting in pay freezes, the bottom line is that they are simply running out of time. They may be reducing engine sizes and making smaller cars but they are not environmentally friendly. Until that happens, the auto makers are fighting a losing battle.
The big picture here is that if this bailout doesn’t go through and GM and Ford have to declare bankruptcy, it will not be good for the stock market. There are whispers the Dow could fall to 6,000 if that were the case but no one really knows.
This market can change direction on a dime which is why this is becoming one of the best environments ever to be trading options. The volatility could increase as the day progresses.
Rick Rouse
Rick@OptionsMentoring.com
