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Detroit Free Press Susan Tompor Column: Investors Watch GM for More Assurance Than Dividends

Posted on: Wednesday, 8 February 2006, 06:00 CST

By Susan Tompor, Detroit Free Press

Feb. 8--One word -- and it's not dividends -- will determine whether General Motors Corp. stock goes up or down from here.

"The stock collapsed essentially because Wall Street was nervous about a potential bankruptcy at GM," said David Healy, an auto industry analyst for Burnham Securities Inc.

And the stock isn't about to go up significantly, unless the Chapter 11 talk cools off.

Tuesday's news certainly didn't excite investors, who pushed GM shares down 53 cents to $22.81.

GM said it would cut its yearly dividend in half to $1 a share. It will cap the amount it spends on retiree health care and whack executive pay.

"Frankly, shareholders did not believe the dividend was secure," said Maryann Keller, an auto industry consultant and author.

Even so, she said, it's not surprising that GM's stock price fell further once the news was official. Shareholders would obviously rather get $2 a share each year in dividends than $1.

And, while more cost cutting, such as capping the amount it spends on retiree health care and whacking executive pay, might be welcome, major financial institutions remain unconvinced that GM is well on the way to working its way out of its troubles.

What will it take for GM stock to move up from here?

Market watchers say it'll take a better product lineup, some signs that GM's market share won't drop dramatically below the current 26%, and less talk about bankruptcy.

"I still think it's going to be a show-me stock for quite a while," said Joseph Phillippi, president of AutoTrends Consulting in Short Hills, N.J.

Things investors will be watching:

The GMAC sale. Will the automaker find someone willing to buy a majority interest in GMAC, GM's finance arm?

Healy said such a sale could help drive up GM's stock price because presumably, once GMAC has another majority owner, GMAC bonds would move out of junk-bond territory. Healy does not own auto stocks, but he personally owns GMAC notes.

Yet there are clouds around the potential sale of 51% of GMAC, too.

"First of all, it's not absolutely certain they will get a deal," Keller said.

Labor talks. David Sowerby, portfolio manager for Loomis, Sayles & Co. in Bloomfield Hills, noted that investors will be watching to see if the UAW grants future concessions, too, or sticks to the tough talk Tuesday that the union has done its share and has no immediate plans to negotiate new concessions.

Market share. GM's share of the U.S. car and truck market -- currently about 26% -- could keep falling if the redesigned, full-size SUVs and pickups don't sell well. "Could it really hit 20%? Yeah, it could really hit 20," Keller said.

The bankruptcy buzz. This month, Fortune magazine adds to that buzz.

"Bankruptcy isn't going to occur next week," according to the critical piece on GM in Fortune. "But down the road -- say past 2006 -- its probability is high."

The headline concluded that GM is "heading for a wreck."

Not exactly reassuring thoughts for investors -- even though GM disagrees strongly.

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Copyright (c) 2006, Detroit Free Press

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NYSE:GM, Unknown:GMA,

Source: Detroit Free Press

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