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Thursday, October 09, 2008
Back to 1950s for GM (the Stock Price, Anyway)
Matt Egan
FOXBusiness
General Motors (GM) plummeted to its lowest level since the Truman administration on Thursday amid fears over how a global recession and the credit crisis will impact the embattled auto maker.
GM's shares have lost nearly 40% of their value and sank to as low as $5.41 during morning trading. According to the Center for Research in Security Prices, that's the weakest level for GM's stock since December 1950.
"The stock has really been trading with the debt market pretty consistently over the last three or four years," Michael Ward, equity analyst at Soleil Securities, told FOX Business. "It's all about getting the credit markets stabilized. If and when that happens, GM will certainly be a beneficiary."
Ward said GM has about $28 billion in liquidity to fall back on during these tough times.
"It's really just about getting through the next 12 months," said Ward.
Ward said GM's stock was likely hurt by the lifting of the short-sale ban placed on nearly 1,000 financial-related stocks by the Securities and Exchange.
Auto sales worries were bolstered on Thursday when J.D. Power and Associates warned the global auto market may "collapse" under credit and economic pressures in 2009.
"While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse," Jeff Schuster, executive director of automotive forecasting for J.D. Power, said in a statement.
Shares of rival Ford (F) were sharply lower as well on Thursday, though Toyota (TM) traded with just modest losses.
The plunge in GM's shares prompted a company spokesperson to tell Dow Jones Newswires that GM remains focused on its plans to raise $15 billion by cutting costs and selling assets.
GM unveiled its $15 billion liquidity plan in July amid fears the auto maker will run out of cash due to weak sales. Most of the savings will come from $10 billion in cost cuts.
Earlier on Thursday GM disclosed a 6% decline in sales of its Opel and Vauxhall brands in Europe year-to-date. Overall, GM's sales declined by 1.9% to 1.6 million vehicles.
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Some mutual funds want you to pay for the privilege of them (or your investment adviser) taking your money to invest. It's called a load, and it works like a cover charge to get into a nightclub. Luckily, there are such things as no-load funds. As the name implies, shares of these funds are sold without a fee paid to a broker or investment advisor.
The entire amount you invest in no-load funds goes to work for your returns. On the other hand, with load funds, right off the bat you're charged commission (not to mention other fees incurred over the life of the investment). Let's say, for example, you invest $25,000 into a load fund that charges a 5% commission. This costs you $1,250 off the top, bringing your actual investment down to only $23,750.
The often-cited horse race analogy argues against investing in load funds. Here's the logic behind it: Would you place a bet on a horse that had to start a race 200 yards behind the others? Well, maybe you would if you got a tip from a sketchy, trench coat-clad man in a dark alley. However, under most circumstances, it's not smart to put your money on that handicapped horse.
But some argue that at times that man in the trench coat (aka your broker) knows more about the horses than you do, and has a better shot at picking a winner. Also, sometimes these fees are unavoidable because some funds are available only through investment advisers.
Cost-benefit analysis can help determine when a load fund is worth it (in other words, when it will score you a load) and when it is better to "do it yourself" and avoid the fees. Load-fund fees range depending on share class and can cover a variety of costs, such as paper work and fund management.
