A DIP in the Road

The auto makers are facing hard times. The best way for GM to survive may be to wave the white flag.

For years the auto makers have been struggling to turn a profit. Labor costs, capital costs, and lousy designs have brought the industry to its knees. Now a looming recession threatens to put the nail in the coffin. What to do?

Ironically, Detroit’s troubles have not been brought on by the global financial crisis. They’re a product of accumulated losses. Over the past four years GM has lost a whopping $113 dollars per share, and now no one wants to lend to them. That’s brought on their liquidity crisis.

But if the company declares bankruptcy and seeks to reorganize, DIP financing-secured lending by a “Debtor-in-Possession”-would be available. GM has lots of assets that would make DIP lending secure. And the company could use bankruptcy a negotiating tool with the unions.

Autos matter to the US economy, and the only thing standing between GM and the cash they need is management ego. For GM, the road ahead may be paved through a DIP. This has been Doug Tengdin with the Charter Trust Global Market Update.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-04T14:30:53+00:00 November 5th, 2008|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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