Making the news this morning: Deutsche Bank’s equity research has downgraded General Motors from a “hold” to a “sell.” Nothing surprising there. What is striking is that the new price target is $0. It is not often that an equity research division calls for a company it follows to enter bankruptcy. Even less likely when that company is a component of the Dow Jones Industrial Average.
It is worth noting that the market is expected to open substantially higher this morning — the Dow is called up over 150 points, highlighting the ability of the market to absorb any potential GM failure. A potential bankruptcy of GM is very different from a bankruptcy of a major financial company. Today’s action underscores my earlier point comparing bailouts — rescuing certain financial companies was needed to prevent systemic meltdown despite the risks and costs, while rescuing manufacturers is simply not necessary on this level. The long term health of the financial industry required a rescue, the long term health of the U.S. automotive industry is better served without one.