Thursday, July 3, 2008

GM: Our cars are worth .73 cents on the dollar

But they won't tell you that. They'll just say that this weekend they are having a 72 hour sale, and that you won't have to pay interest for 72 months.

Remember the good ole days when you used to get 5.25% in a passbook savings account? Well lets use this to discount the current value of a GM car for the six years that you don't have to pay interest.

You get 73 cents on the dollar.

At a monthly cost of .004375 interest compounded for the 72 months you get 1.37. 1/1.37=.73.

So that's what your car is worth off the lot with $4.40 gasoline.

(Anyone wondering why Dollar Thrifty (DTG 3.18) went from 10 to 3 this week? What do you think their fleet is worth when and if they close up shop? Tough to make up these losses with surcharges!)

But Wall Street has already yelled fire in the theater, and the puts are pumped to extreme levels. Look at the January 2010 2.5 puts on General Motors which are selling at .70 cents.

Why buy a credit default swap on GM when you can write these!

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