Trading Ford Off the GM News (F, GM)

by: Accidental Consultant posted on: March 29, 2006 | about stocks: F / GM

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A lot of bad General Motors Corp. (GM) news today: More accounting problems, GM doesn't know if it can sell a controlling stake in GMAC, and the unions are fighting hard on Delphi's wage proposals.

While most people are discussing what this means for GM, I am more concerned with what it means for Ford Motor Company (F).

I own very few individual investments outside of my 401K and some small bets on tradesports. One of my speculative investments, however is Ford $10 Jan '08 calls.

Given this, I see virtually all GM news as good news. I used to have some involvement in distressed debt investing. Typically, when one company in an industry is going through trouble, it means bad news for the other companies in the industry. If one firm goes into bankruptcy, then it will be able to lower its costs and be more competitive vs. other firms in the industry.

I think the GM and Ford situation is different. In essence, both GM and Ford have to negotiate with the same workers. So, if GM is able to work out its problems, then Ford should be able to get the same deal. If GM is not able to work out its problems and it plunges into bankruptcy, then Ford will be able to credibly threaten bankruptcy in order to get a favorable deal with its workers.

Given Ford's cash flow per share, a Ford that is out of the woods ought to be worth an easy $20/share.

The big threat is that GM muddles along until Jan '08. Thus, what I am looking for is progress (either good or bad) on GM.

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