No Money-Back Guarantee for GM Stockholders

By Brad Laidman, WeSeed

I’m going to guess that General Motors is a tempting stock for the newbie.

For starters, there’s the memory of GM cars as the well-crafted,  muscular, elegant cars of yesteryear — the Don Draper of cars, like the 1958 Cadillac seen above. It’s a wonderful image, no?

Then there’s the fact that General Motors recently announced they will offer a 60-day money back guarantee to eligible buyers of new Chevrolet, Buick, GMC, and Cadillac vehicles. (Unfortunately, I don’t have $70,000 just lying around. But if I did, the devil on my shoulder might be telling me to tool around in a slammin’ new Escalade for a few weeks before telling the disappointed car salesman: “You know, this just isn’t the right car for me.”)

Anyway, you might see this latest effort and think, “Hey, this might bring people back to GM — maybe I should buy some of this company.” And then you see that GM’s stock is at a mere 77 cents per share, so you could conceivably think, “Hey, what the heck? I can get a whole lotta shares for a mere couple hundred bucks. If the company ever comes back, hellllllo Tuscan villa.”

But before you click “Buy,” let me remind you of a quick fact here: General Motors declared bankruptcy last July. The company is currently negotiating with its creditors to somehow get a new lease on life. And that’s not good.

See, when a company goes bankrupt, all of the debt holders jockey for position in hope of getting a piece of what’s left of the entity’s assets. And here’s a key thing to understand: stockholders are always last in line. If General Motors could pay their creditors, they wouldn’t have declared bankruptcy in the first place.

That means that General Motors’ outstanding stock is essentially worthless because it’s quite likely that they won’t even get to the shareholders.

Don’t believe us? Even the company’s website says so:

“Management continues to remind investors of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios. Stockholders of a company in Chapter 11 generally receive value only if all claims of the company’s secured and unsecured creditors are fully satisfied. In this case, management strongly believes all such claims will not be fully satisfied, leading to its conclusion that the common stock will have no value.”

Still, hope is a tenacious thing, and people apparently have a lot of it. General Motors, which now trades under the sexy symbol MTLQQ, closed last night at 74 cents and traded close to six million shares on the day. It’s hard to believe that in today’s market things could be this inefficient, but sadly lots of uninformed people keep buying General Motors’ likely-to-be-canceled stock mistakenly thinking they are investing in the future of the post-bankruptcy corporation.

If you want to invest in the future of General Motors, you’ll have to wait for the emerging concern to issue new common stock, and knowing how slow bankruptcy proceeding are, that may take a while.

image by cadmanof50s

Nike Betters Stock by Socking It to Employees

Photo by Getty Images

by Erica Feldkamp, WeSeed Writer

I’m going to say something so incredibly insensitive that any reader with an ounce of decency should be provoked:

1,750 people are about to lose their jobs, and I believe that that’s a good thing.

Athletic shoe giant Nike (NKE) just announced that they’re kicking 5 percent of their employees to the curb. These former Nike employees will then join the almost 6 million able-bodied Americans who are living without a paycheck.

While it’s hard to imagine how joblessness could ever be a good thing, think about this: If Nike can’t generate enough revenue to maintain its own security in the market, how can it offer any security to any of its employees? By cutting administrative and production costs, companies are able to better maintain the same profitability when sales revenue diminishes.

Who cares about profitability, though, when canned workers have to scrounge to make ends meet? Wall Street does, and so do shareholders, who are probably the same people being laid off. When company finances fall short of stock analysts’ expectations, it’s bad news for everyone. Investors sell their shares, and the company’s cash flow bottoms out as share price plummets.

This is what contributed to General Motors’ (GM) woes—the carmaker was left with no money to float itself when sales tanked. The result? Lots of good people — who spent their lives working for GM and who had built their retirement funds on the carmaker’s stock options — are left in the lurch.

GM didn’t cut its production costs. It didn’t re-invent its product to stay competitive. And it didn’t pare down its labor force early enough. Now every worker in GM is on the brink of unemployment. What’s worse, all the employees who had tied their retirement to the company’s stock are left with shares that are worth barely more than a dollar.

Getting back to Nike, do you think the sole maker has no soul, or is it acting in the best interest of the majority of its workers?