Market Sees a Citi-Type Deal for Automakers

Will Congress use a Citigroup template to invest with General Motors (GM - commentary - Cramer's Take) and Ford (F - commentary - Cramer's Take) rather than a Washington Mutual template of crushing the common stocks? Sure seems like that when you saw the rally today.

It is hard for me to believe that Congress will allow the common stocks to be preserved for these two if they want money. But I also know that the Citigroup (C - commentary - Cramer's Take) investment was one of the key reasons for this big rally, because it didn't hurt existing investors. And if the union is asking for equity, then it is unlikely that the current common stocks get anything more than diluted, and diluted badly, not wiped out.

Of course Citigroup and GM/Ford are very different animals. The government was desperate to save Citigroup in a way that gives it time to fix itself. The Congress seems determined not to give GM/Ford money because it doesn't feel the situations can be fixed. You can't really fix them if you leave all that debt on the books, but there is no way whatsoever that you can crunch debt and only dilute the common. The debtors can't be left holding the bag here.

But it is also possible that we get something in between Citigroup and Washington Mutual, in this case the old Chrysler deal with a huge amount of warrants for the government. Chrysler than delivered on its promise for new models, and it was off to the races. Some might recognize this plan as an AIG (AIG - commentary - Cramer's Take)-style bailout, which would be disastrous for the common. It would cause all of the rally in GM and Ford to be repealed.

I have said that we have to stay close to these, as they will fluctuate endlessly on the words of a few politicians. That means you can buy them into happy chatter as long as the details are known, but I think the details will be more onerous than the stocks indicate.

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