Auto analyst: "it's a win-win situation..."
Wednesday July 29 8:18 AM ET
Investors don't walk out on GM
By CNBC's Jim Paymar
General Motors (NYSE: GM) suffered some $2 billion in losses
during a contentious strike by the United Auto Workers union over
the last two months -- but the automaker's stock price has held
strong, CNBC's Jim Paymar reports.
GM shares are down slightly since the strike began, but they're
still up noticeably for the year. Now that a tentative settlement
has been reached between the company and the labor groups, GM's
share price may make a significant move north.
One of America's industrial giants, GM shut down North American
operations and idled some 190,000 workers during the strike. But
the company's stock is down only approximately 6 percent for the
year, versus a rise of three percent for the S&P 500.
(GM's stock was up $1.25 to close at $74.25 on the New York Stock
Exchange Tuesday.)
The walkouts forced GM to shut 25 of its 29 North American
assembly plants. The automaker has said it lost production of
about 21,000 vehicles a day because of the strikes, but investors
were seemingly unfazed.
"There is a lot of anticipation of GM going back to work and that
is positively reflected in the stock price. But whether the stock
price holds the gains it made over the last few days will be
specifically related to whether or not GM gave up too much and
got too little," said Maryann Keller of Furman Selz.
Some analysts believe that large industrial concerns tend to
trail the market during times of labor tensions, but companies
often rebound sharply and maintain increased share value after a
strike. For GM, much will depend on the terms of the settlement
and what actions the company takes to increase its productivity,
which lags behind Ford and Chrysler.
"For investors, it's a win-win situation," said David Garrity of
GVA Research.
On Aug. 3, the GM board will consider alternatives to reduce
costs in North America such as closing down plants with low
profit margin products.
"The board will probably take action in the industry - with
Daimler-Benz and Chrysler changing the competitive dynamic - but
I would say it's a good time for investors to buy the [GM]
stock," said Garrity.
With a tentative settlement, GM now has the opportunity to
thoroughly restructure its operations and to create a leaner,
meaner motoring machine. Wall Street analysts have been advising
the company to make these changes for years.
"The big step of whether GM stock will be in the low $70s or move
to $80 or more a share is really going to be dependent on what
steps manufacturing must take to get its capacity, costs and
product portfolio under control," said Garrity.
GM's future outlook will also depend on whether the company can
maintain labor peace with other union locals, how fast the firm
can get production lines running at full steam and whether or not
GM can regain market share lost to other automakers during the
strike.
Some analysts believe that until GM strips itself of divisions
that don't perform well and closes some of its plants, it will be
a tough road going forward. |
