General Motors Goes Bankrupt

Illustration by Sean McCabe

The start of the year is a time for crystal-ball gazing. Sure, I could give you the standard fare, the typical Wall Street gibberish that you will hear in a virtual 24-hour loop for the next few weeks: untried Fed chairman, big-budget deficits, uncertain presidential leadership, a peak in real estate, an end to the interest-rate-tightening cycle. Know what? You know all that already. I’d rather tell you about some things that could happen that could make you some huge money in 2006. I can’t guarantee any of them will come to pass, but if they do, well, remember your friend Cramer tipped you to them.

I know it will come as a gigantic surprise to those who still hold General Motors’ stock and bonds, but for GM, it’s time to go bankrupt and start over. I think the company will turn the world upside down with a prepackaged bankruptcy plan that puts its financial woes in the past. Don’t snicker. How do you think our textile and steel industries in this country reinvented themselves? Through the wonders of bankruptcy. Of course, the idea of GM’s filing for bankruptcy scares the hell out of people, including the hundreds of thousands of folks who make their living directly or indirectly off the world’s largest automaker. Even the patricians at the White House, who approach the world from the Scrooge playbook, would have to sit up and take notice if a filing comes.

That said, it would be so brilliant—and so obvious, really—for GM to file for a reorganization to once and for all address its legacy costs that I think even this thickheaded management will make the move. Right now GM actually makes decent cars, but it loses money on every one it makes, because GM provides better health-care and retirement benefits than any other company—or country—on earth. If you worked at GM at any point in your life, you must feel like you live in Oz: With a pat-pat here and a pat-pat there, that’s how we keep you young and fair—as we drive the company’s net worth into the ground! Of course, current management is oblivious; it pays out a huge dividend to shareholders even as it tries to plead poverty to the workers. The company can shuffle its voluminous set of deck chairs—its GMAC credit and mortgage operations, maybe its OnStar division—all it wants, but only bankruptcy will solve its problems for good, as the frantic maneuvers just delay the inevitable cash crunch.

In bankruptcy, GM can shift some production to South Korea, close redundant plants, shirk its gigantic Delphi obligations (it still owes a ton from when Delphi was spun out of GM), and offer realistic wages to all who stay onboard. The good thing, from GM’s point of view, is that Bush’s Labor and Justice departments will look the other way at the pension and union contracts that will be canceled, just as they did for the big airlines last year (at least those that escaped bankruptcy), all of which are prospering now simply because they crunched old workers’ obligations. I mean, isn’t that why the nation went Republican? In 2007, after the common stock is wiped out and the bondholders get the company, the new GM will emerge—lean, mean, small, and profitable.

For the past few years, Citigroup has been in the doghouse with regulators. Now new honcho Chuck Prince, a buttoned-down lawyer, has eliminated the cowboys and stopped the culture of trying to sell anything to customers as long as it had a big fee. That may soon give him the green light to make an acquisition. Citigroup has been taking a huge backseat to other players as it gets its ethical house in order. An acquisition could make Citigroup dominant again worldwide. Which means Prince will buy Goldman Sachs. I don’t know if you realize it, but Goldman, the once-premier name on Wall Street, now sells more cheaply than Bear Stearns and Lehman Brothers and Merrill Lynch, all firms that we sneered at when I worked at Goldman in the eighties. It seems that no matter what Goldman does, it isn’t enough—analysts are continually disappointed in its outstanding performance. I just don’t think that Citigroup can pass up a chance to buy the best name in the game for three times book, which I think gets Goldman. Look for a $165 bid, but expect less if Goldman’s stock keeps rolling lower, as it did after its last quarterly results were announced. With this acquisition, Citigroup once again will become the world leader in finance.

In 2004, when Comcast made its aborted offer for Disney—something that Comcast actually thought that Disney wanted, when nothing could have been further from the truth—I figured that win or lose, Comcast would remain a key, if not the key, player in the distribution of television programming in this country. But Intel, Broadcom, Qualcomm, Apple, Microsoft, Texas Instruments, Motorola, Nokia, Dell, and Marvell Technology Group all have another agenda, which is to make a new device that makes your phone calls, gets you on the Internet (wirelessly), and downloads TV programming, sans commercials, when you want, on the channel you want it. Late in 2006, we’re bound to see one or more of these great tech companies unveil a product that will allow you to purchase, download, and watch anything that you want, from sports programs to movies to television shows to video games. The device will smash the current cable paradigm and will make all those stocks worth owning once again, as they were in the year just past.

The only way Comcast can ensure it doesn’t become an afterthought is if it buys some proprietary programming itself. Comcast blew it when it failed to get NFL Sunday Ticket, which took satellite TV from the minor to the major leagues. Now that CBS is separating from Viacom, Comcast gets another chance to buy a television network and distinguish itself as the owner of must-have TV. Actually Comcast can pick and choose, because the Viacom portion, with MTV, VH1, Comedy Central, and Paramount Pictures and Home Entertainment, could make a nice fit, too. By the way, it wouldn’t surprise me to see Comcast or a phone company, either AT&T or Verizon, buy Electronic Arts, to crack into video-game programming and stay relevant with younger people. One might do it just for those cool ringtones EA now offers. Anything for the young demo, which seems to be drifting away from everything but Xbox.

In 2007, after the common stock is wiped out and the bondholders get the company, the new GM will emerge—lean, mean, small, and profitable.

In 2006, newspapers will discover what it’s like to be General Motors, if not Bethlehem Steel. That’s because classified and display ads and even inserts will continue to gravitate, en masse, to the Net. The bargain that Google offers is so great to local and national advertisers (far more targeted ads, fewer wasted eyeballs) that I think it will double its share this year (Internet ad spending already makes up 5 percent of all ad dollars). Meanwhile, I believe 2006 will be the year that newspapers begin to see double-digit declines in both ads and circulation. For some, like the New York Times, this just means making less money in 2006 than it did in 2005—nothing new there (and I suspect it will make even less money in 2007 than it does in the coming year). But for Dow Jones, in the last years of Peter Kann’s stewardship (he’s retiring), finally enough is enough in the stagnant share-price business, and the Dow board will decide to take Rupert Murdoch’s offer of, say, $50—some $20 less than he would have offered five years ago. News Corp. will promptly close all but the editorial board and merge the news staff with that of the New York Post (don’t think Rupert doesn’t have it in him). Murdoch will also give a joyful Roger Ailes the staff he needs to set up a full-blown TV-business-network competitor to CNBC.

My crystal ball sees no end to the turmoil afflicting the pharmaceutical industry. With the government as the biggest payer in the system, courtesy of the changes in Medicare, the drug companies will be forced to discount drugs well below where they thought they might have to. That combination of price squeeze and endless overhead will force Bristol-Myers and Pfizer to merge, and Merck and Schering-Plough will get together. The latter will occur only if Merck can escape bankruptcy from a spate of Vioxx-trial losses that I see happening. The rapacious tort bar may just insist that the equity be given to those who took Vioxx, something that an aggressive federal judge held over from the Clinton era may countenance. No matter, I expect all the growth and performance in the drug industry to come, once again, from Amgen, Genentech, Gilead, Genzyme, and Celgene, as the biotechs seem to be the only companies capable of making blockbusters anymore.

Okay, so that standard Wall Street gibberish isn’t entirely useless. It’s true that our clueless president, huge deficits, and the like will act as an anchor, as they did in 2005, on U.S. stock averages. Unless a U.S. company has big exposure to BRIC (Brazil, Russia, India, and China), you can’t expect its stock to make much headway. Those companies that are able to crack into BRIC—companies like Boeing, Caterpillar, Procter & Gamble, and Altria—will make worthy but boring gains that will exceed the averages. But you’ll do better to just pick among the potential takeovers with good fundamentals and keep the rest in cash, earning 4.5 percent by the time the Fed’s done lifting rates. That, as they say on the Street, is better than a sharp stick in the eye.

James J. Cramer is co-founder of . He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions he takes may change at any time. At the time of this writing, he owned Altria, Boeing, Intel, Microsoft, Procter & Gamble, Qualcomm, Schering-Plough, and Yahoo. E-mail:

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General Motors Goes Bankrupt