GM Files for Bankruptcy

It will be the largest industrial bankruptcy in U.S. history and the fourth-largest overall. In exchange for a 60 percent stake, the federal government would provide an additional $30 billion to General Motors Corp. (GM) -- which has already received about $20 billion in government loans -- to help it restructure through a 60-90 day bankruptcy.

GM will move forward with four core brands -- Chevrolet, Cadillac, Buick and GMC. The company plans to cut 21,000 employees, about 34 percent of its work force, and reduce the number of dealers by 2,600. We think this is needed and will be good for the company in the long term (and we have been calling for it for some time).

There will be volume weakness in the near term because of this. Ford (F - Analyst Report), Honda (HMC - Analyst Report), Toyota (TM - Snapshot Report) and Nissan (NSANY - Analyst Report) are key beneficiaries. Magna (MAG - Snapshot Report), American Axle & Manufacturing (AXL - Analyst Report) and Lear (LEA) are key companies that are negatively impacted.

As a side-note, we upgraded the auto industry from underweight to neutral on Friday, and believe that the worst has now hit the auto industry. The stocks should track the market from this point forward.