Schaeffer's Media Outtakes: Is it Finally GM's Time to Shine?

"It is the instinctive wish of most American businesspeople, even those unlikely to be directly affected, that General Motors not go bankrupt. True, some people will say, 'They had it coming to them.' But the majority will be more practical, telling themselves that the company is so central to the economy, so sprawling in its commercial reach, that bankruptcy—'going into chapter,' as restructuring folks say--is ominous almost beyond contemplation. And yet the evidence points, with increasing certitude, to bankruptcy. Rick Wagoner, GM's 53-year-old chairman and CEO, may say, as he did in a January interview with FORTUNE in his aerie of an office high above the Detroit River, 'I know that things will turn around.' But he cannot know that. He may not, deep down, even believe it himself."
----(Fortune – cover story – "The Tragedy of General Motors" – 2/20/06 issue)

Schaeffer's addendum: The words quoted above were emblazoned on the cover of one of America's most popular business publications. It is the second major negative piece on General Motors (GM: sentiment, chart, options) from Fortune in less than a month ("Detroit's endless winter" – 1/30/06) and is part of a pattern in the financial press recently of "piling on" the beleaguered auto maker, to wit:

• "Should the Dow Ditch General Motors" - BusinessWeek, 1/9/06 issue
• "A bright, shiny car wreck" – CNNMoney.com – 1/7/06
• "Detroit Stuck in Neutral" – The Wall Street Journal – 1/26/06

I point this pattern out not to proclaim that GM does not have the problems that have been well documented in these articles. But I'll also note that, in my opinion, there is absolutely nothing that was revealed in this somber and extensive cover piece that has not been thoroughly documented and discussed on numerous occasions in numerous other media forums.

Calling a bottom in a troubled company is always supremely difficult (I've been thus far way too early [read: "wrong"] in calling one for GM), as much of the negative sentiment is well deserved and the weak price action does not provide the "contrarian contrast" between negative sentiment and strong technicals that is at work in the best of contrarian buy situations. It is only when the sentiment becomes over-the-top gloomy and almost inescapable in its pervasiveness and totally dismissive of current and potential positive developments that one can feel somewhat safe in making the bottom call. And I think with the arrival of this latest GM cover story, we're there, just as we were in November 1992 when Time magazine's cover asked, "Can GM Survive in Today's World?"

This does not mean that GM stock has no additional downside – it is certainly possible, even if bankruptcy were not at all a concern for the shares to retest the recent lows in the 18 area. And one cannot completely rule out the worst case. But investing is a probability game and a game of comparing potential rewards and risks, and in GM's case here and now, I believe the potential upside is well worth the risk of the potential downside.

What always gets lost whenever an investment scenario seems to line up totally on the plus side or on the minus side are developments that will unfold that are completely off the radar screen of the various pundits. And it is uncanny just how often these future surprises line up in the opposite direction of what the crowd had been predicting. And finally, to quote from the excellent Jerry Flint Forbes piece I had previously referenced: "I've written this before and I'll write it once more. The graveyards, and the ocean bottoms, too, are full of men who underestimated American courage and determination."

"GM has too many issues to address. Number 1- the UAW leadership is not going to work with GM. The UAW leadership are politicians. Their first concern is getting re-elected to their present positions. They can't be seen as soft. Number 2 - their cars have no style. They are building big SUVs when oil is getting close to peak production."
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"So it's _Jack Kerkorian??_ I thought they said 'Dr. Kervorkian'."
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"Buy this trade idea? Pay someone to hit me in the head with a hammer?"
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