GM shares fall below $1, hitting 76-year low


Shares of General Motors Corp. fell below $1 Friday for the first time in 76 years as the struggling automaker approached a government-imposed restructuring deadline and a likely filing for Chapter 11 bankruptcy protection.

GM shares lost 37 cents to fall to 75 cents. It was the stock’s lowest trade since April 18, 1933, according to the Center for Research in Security Prices at the University of Chicago.

The symbolic drop comes just days ahead of a government-mandated June 1 deadline to restructure. GM is expected to file for Chapter 11 bankruptcy protection by then, which would leave existing shareholders virtually wiped out.

One local resident, who did not want to be identified, said he wonders whether it was worth selling his GM stock at such low prices. He bought the stock at $17 a share about a year ago.

Robert Gardner, financial adviser with the Butler Wick divison of Stifel Nicolas in Canfield, cautioned anyone tempted to buy the discounted GM shares.

Typically, existing shares in a bankrupt company are replaced with new shares in a reorganized version of the company, he said. So buying shares before a bankruptcy does not give an investor any stake in the company that will emerge, he said.

“Many people don’t realize that and consider taking a chance buying the stock. That’s extremely risky and something I highly discourage,” he said.

Existing shares usually are worthless because investors fall behind bondholders and other creditors under bankruptcy rules.

Even if GM were to escape bankruptcy, investors shouldn’t automatically expect its share prices to rebound, Gardner said. GM’s reorganization plan calls for many shares to be issued to bondholders and the United Auto Workers, decreasing the value of existing shares, he said.

A senior Obama administration official estimated that GM would be under bankruptcy protection for 60 to 90 days, longer than Chrysler LLC’s expected reorganization because GM is bigger and more complex. The official spoke on condition of anonymity because of the sensitivity of the negotiations.

GM’s new road map, outlined in a regulatory filing Thursday, would briefly send the automaker into bankruptcy protection, erase most of its debt and eventually have it emerge leaner and stronger.

All told, the U.S. government would own 72.5 percent stake in the restructured automaker after it emerges from bankruptcy protection. A United Auto Workers trust that will take over retiree health care expenses will get 17.5 percent, and the old GM, effectively owned by the bondholders, would get the rest. The plan made no mention of the fate of existing shareholders. A person familiar with GM’s plans said it was “probable” that the company would file for Chapter 11 bankruptcy protection Monday.

SEE ALSO: Shrinking GM targets small cars for growth.

Don't Miss a Story

Sign up for our newsletter to receive daily news directly in your inbox.