Fed's move boosts GM shares
Shares of General Motors Corp. ended the week on a high note, jumping 12.6% Friday as investors reacted to the Federal Reserve's move this week to allow the automaker's financing arm to become a bank. That decision, announced Wednesday, could make it easier for GM customers and dealers to access loans in the future.
GM's stock rose 41 cents, to close at $3.66 on Friday, reflecting investors' relief that a bankruptcy of GMAC is now less likely to derail a GM turnaround, which is being fueled by a loan of up to $13.4 billion from the federal government.
"People are connecting the dots that if GMAC has bank powers it will allow them to be more of a willing lender," said David Sowerby, portfolio manager at Loomis Sayles & Co. "And that will be a catalyst for car sales."
In an emergency move Wednesday, the Federal Reserve allowed GMAC to become a bank. The move opens the door to GMAC to several new sources of money, including access the government's Troubled Asset Relief Program. GMAC has applied for TARP money. At this point it's unclear how much it would receive. CreditSights Inc. estimates that GMAC could receive as much as $6.3 billion through that program.
As part of the deal to become a bank, GMAC owners Cerberus Capital Management LP and GM will have to give up control over the company.
The jump for GM's stock Friday is only a small improvement for GM's stock price, which has plummeted 87% since its 2008 high of $28.35 in February.
Investors have been fooled by false starts in GM's share price before, only to see GM's shares tumble further, as the nation's economy continues to deteriorate and growth of global markets slows.
"We are still in desperate need of a catalyst for consumer confidence," Sowerby said. "That's critical."
Shares of automotive firms were up across the board Friday on a day when the Dow Jones Industrial Average rose 47 points. Ford Motor Co.'s stock rose 18 cents, or 8.5%, to close at $2.29. Shares of seat maker Lear Corp. rose 14 cents, or 11.4%, to close at $1.37 Friday. Detroit Free Press