Have 'old' GM shares lost their fizz for good?
Speculators may finally be tiring of Motors Liquidation Co., the shell company that was created last year to deal with some of the remains of General Motors Corp.
Shares of the shell firm periodically have spiked higher over the last year on any hint of good news for the automaker -- even though the outlook for the new slimmed-down GM has nothing to do with the old GM as represented by Motors Liquidation.
On Wednesday that cycle finally seemed to break: Motors Liquidation slipped a fraction of a cent, to 56 cents a share in over-the-counter trading, despite the new GM’s reiteration that it expected to be profitable this year.
After GM CEO Ed Whitacre first made that prediction on Jan. 6, traders drove Motors Liquidation up 22% on Jan. 7 and an additional 13% on Jan. 8. The stock closed at 83 cents that week, a gain of 36 cents, or 77% for the five days.
That kind of wild trading in shares of shell companies isn’t unusual, but GM has gone to great lengths to warn investors that Motors Liquidation stock almost certainly will end up worthless as creditors’ claims are satisfied.
On its own website, Motors Liquidation says that “management continues to remind investors of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios.”
The new GM, meanwhile, eventually is expected to offer new stock to investors, a move necessary to repay the federal government’s $50-billion investment in the company.
But Motors Liquidation investors who believe their shares will be exchanged for some portion of any GM stock offering are kidding themselves.
No doubt many have just been playing the Greater Fool game: "I'm a fool to pay 56 cents for a worthless stock, but not if there's a greater fool out there willing to pay 66 cents, or 77 cents, or any other higher price."
At some point, however, the number of greater fools willing to gamble on Motors Liquidation will dwindle. Maybe that process is well along.
-- Tom Petruno
Photo: The GM logo on a chimney at the shuttered assembly plant in Janesville, Wis. Credit: Scott Olson / Getty Images