Today's announcement that GM will sell 51% of their GMAC financing arm really brought home to me how bad things are at GM. I haven't really followed the situation, but I had assumed that GM was facing the same type demographic bomb as the airlines, fat and underfunded pensions and retiree health care benefits promised when times were good and US auto makers didn't face much troubling competition.
Here is what I found interesting: GMAC is reported to make about $2.5 - 3 billion a year in profits. This might tend to imply a value of at least $25 to $30 billion, which is confirmed by the fact that GM just sold half for $14 billion. But GM as a whole has a market cap of just under twelve billion. This means that their entire manufacturing business is valued in the market at roughtly -$16 Billion. Yes, negative sixteen billion. Another way to look at this is that if instead of selling GMAC yesterday, GM had instead sold all of their automotive manufacturing, brands, designs, etc. to someone for $1, and became a pure financing business, GM shareholders would be richer by $16 billion, the equivilent of raising the current stock price from about $21 to about $49.