Detroit Free Press Susan Tompor Column: Stock Gets Blip, State Gets a Boost
By Susan Tompor, Detroit Free Press
Sep. 27–A short walkout and a quick tentative settlement added up to a fast pop for GM stock — and a swift save for Michigan’s economy.
On Wednesday, General Motors Corp. stock shot up 9.36% and closed at $37.64 a share, up $3.22 a share from Tuesday. The relief rally spread to other auto stocks.
Ford Motor Co. closed at $8.88 a share on Wednesday, up 54 cents or 6.47% from Tuesday.
Lear Corp. closed at $33.26 a share on Wednesday, up $1.81 a share or 5.76%. American Axle & Manufacturing Holdings closed at $24.94 a share, up $1.68 or 7.22%.
Shelly Lombard, a senior high-yield analyst for Gimme Credit, a corporate-bond research firm in New York, said that the preliminary details on the GM-UAW deal looked positive — including a modified jobs bank and a new UAW-controlled retiree health care fund.
“From what I’m hearing, this is very good for GM,” Lombard said.
GM is the first among the Detroit automakers to launch the complex retiree health care trust — known as a voluntary employee beneficiary association, or VEBA. The trust would have an upfront cost for GM but get more than $50 billion in long-term health care obligations off its books.
Similar sorts of health care trusts could follow during upcoming contract negotiations.
GM, Ford and Chrysler have health care liabilities totaling nearly $100 billion.
“If they were willing to do this for GM, they should be willing to do this for Ford,” Lombard said.
Details continued to be scarce early Wednesday, but other analysts expressed some optimism, as well.
“GM may have gotten some key wins,” Morgan Stanley analyst Jonathan Steinmetz wrote in a report.
Even so, Steinmetz is not recommending that investors buy GM stock. He continued to have a hold rating on GM — and a price target of $30 a share — noting competitive pricing and other pressures in the United States.
Gary Ran, chief executive officer of Telemus Capital Partners in Southfield, said GM has many challenges — including its struggles to regain market share.
“Would I be buying it? No,” Ran said. “To me, auto stocks are all about market share.”
Ran noted that GM’s not a bargain price now when the stock is $36 or higher; it would be a strong hold, but not a buy.
David Healy, auto analyst for Burnham Securities, said his initial thought was that he wouldn’t rush to call his broker to buy GM at this point, either.
“My own first impression is that the settlement is fairly costly for GM,” Healy said.
David Sowerby, a Bloomfield Hills-based portfolio manager for Loomis, Sayles & Co., noted that in general GM and Ford have both posted weaker returns, based on price alone, than the Standard & Poor’s 500 over the years.
For the past five years, the cumulative price-only return for S&P 500 index of stocks was up 90%. GM was down 5% and Ford was down 4%, based on price alone, he said.
Sowerby noted that GM may have a better-than-normal contract, but the Detroit manufacturers must overcome a slower U.S. economy and more competition.
Yet some other observers were more upbeat for GM’s longer-term prospects.
Joseph Phillippi, president of AutoTrends Consulting Inc. in Short Hills, N.J., noted that GM stock could fall back in price, especially in light of potentially tough sales reports in the next few months.
But longer term — say the next three years or so — he said GM’s stock could prove to be a “better buy than a sell or a hold.”
He expressed enthusiasm for GM’s new Buick Enclave and Cadillac CTS — both assembled in Lansing — and the new Chevrolet Malibu.
“At the end of the day, you can’t cost-cut your way to success, you’ve got to drive revenues higher,” Phillippi said.
“They’ve got to drive costs down — and they’ve got to drive market share up,” Phillippi said.
In Michigan, meanwhile, many economists and others were relieved by the unexpected news.
“Like everybody in Michigan, we’re glad to see that the strike has been resolved quickly,” said David Rever, fixed-income analyst for Munder Capital Management in Birmingham.
Thousands of Michigan families had held their breaths for months, avoiding everything from big-ticket items to small trips to the store on the worry that contract talks between the UAW and the automakers could be tough.
Roughly 38% of the striking hourly workers at GM work at manufacturing, powertrain, stamping and other GM plants in Michigan, according to my calculator.
GM had about 28,501 active and temporary laid-off hourly workers in Michigan as of April 30, if you add up the numbers for individual Michigan facilities listed in the GM Manufacturing & Labor Resources handbook.
Scott Watkins, a consultant for the Anderson Economic Group in East Lansing noted that the average assembly worker’s pay — before taxes — would be about $1,112 each week.
Run the numbers with those Michigan workers alone, and we’re looking at $31.7 million lost each week in Michigan.
“That’s really just money being taken out of the economy,” Watkins said. “People basically aren’t earning any money when they’re on a picket line.”
Contact SUSAN TOMPOR at 313-222-8876 or stompor@freepress.com.
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