Yesterday I waxed poetic about Kirk Kerkorian's huge purchase of GM shares. The move sent GM's stock soaring and despite issues around their huge pension committments, made it a sunny day in Detroit.
What a difference a day makes. Today GM AND Ford had their bonds downgraded to junk status (so much for my theory that Kerkorian's purchase would improve GM's bond status.
Right, wrong of indifferent, the auto industry is the sounding board for our overall economy. The auto industry touches so many different facets of our economy that when it is up usually the US is doing great. However, when it is down, usually the economy follows suit.
The fact that two of our big three auto titans now have a junk rating is not good news for Detroit. Junk status bonds means higher borrowing costs and generally leads a company down a dark path.
Hawk's View: Yesterday I stated that Kirk Kerkorian's purchase would lead to heavy handed with the UAW to get serious benefit concessions. I still think that is true, but now that both GM and Ford are trading bonds at Kmart (pre Eddie Lampert) levels means the situation is graver than I suspected. Expect the rhetoric to be fierce and venomous.
At least the Motor City has the Super Bowl to look forward to...
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