Should You Buy a GM?

This month answers questions about buying a GM vehicle, investing in a managed futures, undoing a Roth conversion and handling an HSA after a layoff.

By Kimberly Lankford, Contributing Editor

From Kiplinger's Personal Finance magazine, August 2009

I'm in the market for a new car. General Motors filed for Chapter 11 bankruptcy in June, and now I'm wondering whether this is a particularly good or bad time to buy a GM vehicle. J.S., via e-mail

As GM restructures into a leaner company by shedding brands and dealerships, you can get some great deals. Expect to find the best bargains through the fall at dealerships that are closing, says Jesse Toprak, an analyst at Edmunds.com (the site has a list of GM dealers that are going out of business). The deals may get better as the closing dates get nearer, but you will also have fewer choices and may have to compromise on color and options. By late fall, dealers will work through excess inventory and prices are likely to rise.

To target a fair price, research incentives. For example, in June GM was offering $1,000 cash back on both the 2009 Cadillac CTS and the Chevrolet Malibu. As for how much dealers are charging, price differences are wider than normal. And prices may vary by thousands of dollars even at the same dealer for the same model, Toprak says.

General Motors hopes to keep core brands, such as Buick, Cadillac, Chevrolet and GMC, and shed less-profitable brands. It already has buyers for Hummer and Saturn, and Saab is also on the block. GM will completely eliminate the Pontiac brand in the next few months. That means resale value will vary a lot depending on the brand you buy. Toprak expects Pontiac models to experience the biggest drop in resale value. Cars remaining in the GM lineup will take a resale hit over the short term, he says, but don't expect a big drop over, say, five years.

General Motors will continue to honor its warranties. And the U.S. Treasury Department has offered to back warranties for any GM vehicles bought during the restructuring period. So if the company doesn't ultimately emerge from bankruptcy, the government will pay for service.

Pros and cons of futures

I may invest with a commodity trading adviser (CTA) who deals in managed futures. What are the risks and benefits of this investment? Richard Lindemann, Long Beach, Cal.

Managed-futures strategies were one of the few investment approaches to make money through 2008, so giving them a look is understandable. The Barclay CTA index gained 14.1% in 2008, though it's down 0.75% year-to-date through early June.

A managed-futures strategy involves making bets on anything you can purchase futures on -- including energy, agricultural commodities, metals, currencies, interest rates and stock indexes. Some advisers base their decisions on economic fundamentals. But most follow a momentum strategy -- betting that the recent direction of the dollar's value, for example, will continue. Because futures traders can bet on prices either falling or rising, they can make money in any market that exhibits a strong trend. Thus, adding a futures-trading account to a stock-and-bond portfolio can be a wonderful way to diversify.

The problem is with access and costs: There simply isn't a cost-effective way to tap the area yet. To invest with a CTA, you must be an accredited investor -- that is, have a total net worth north of $1 million, or earn at least $200,000 -- and CTAs often require initial minimum investments of $250,000 or more. You'll also have to pay hedge-fund-like fees of 2% in annual expenses plus 20% of gains.

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