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General Motors (NYSE:GM) Will not Get Government Aid

Oct 31 2008

General Motors (NYSE:GM) Will not Get Government Aid

Seems logical that if the Federal Reserve and the Treasury are going to pump the financial markets with over a trillion dollars of loans to make sure additional banks do not fail, they would spread some wealth over to the domestic auto manufacturers which are having just as much trouble. But that does not appear to be the case.

Help us Merge

            General Motors wants to merge with Chrysler and was hoping for federal funds to assist in the goal. But the Treasury has decided that auto manufacturers are not eligible for federal funds. Six governors wrote a letter to Secretary Henry Paulson and Fed Chairman Ben Bernanke asking for the assistance but the request has been declined. Now the merger is on hold until after the election in hopes that a new administration will be friendlier to the industry.

Weak Month Coming

            The credit crunch and the global recession should keep car sales weak when manufacturers report sales for October on Monday. This will be the second month in a row of historic declines in sales if October is at all similar to September. Toyota saw a 32% drop in sales in September and offered 0% financing during the current month to combat the drop-off. General Motors was unable to offer any kind of financing deals and actually stiffened financing.

Gas Prices Should Help

            With a longer-term perspective, the companies should see sales improve for their larger vehicles as oil and gas prices have been cut in half from their highs reached in July. The trend in oil has leveled off with the recent interest rate cuts in the US, but the trend is likely to continue after this brief pause.

The Trade

            You can get short both Ford and General Motors before the report with a tight stop and let the trade ride for Monday as the sales report should cause decent declines in both stocks.

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