A string of solid successes is winning General Motors Corp. respect on Wall Street, propelling the automaker's shares to a three-year high on Friday.
GM's new money-saving labor pact with the United Auto Workers is behind the latest stock price surge as investors absorb implications of the deal reached on Sept. 26 and ratified Wednesday.
Shares shot up nearly 7 percent on Friday to close at $42.64. GM's stock price has surged more than 40 percent since the start of the year.
But beyond the labor deal, GM has been buoyed by its ability to cut costs and improve a lagging product lineup, all while making landmark changes to how factories operate and workers get paid.
While GM still faces major hurdles, investors long skeptical of promises made by the automaker are beginning to see GM as a company that delivers. Now, the No. 1 U.S. carmaker must translate that changing image to the minds and wallets of consumers.
“I'm sure there are plenty of people who looked at this company as 'the troubled GM,' ” said Joseph Phillippi of AutoTrends Consulting. “This could help them from a consumer perspective. People are going to take a more rational look at the company as a potential source for vehicle purchase.”
GM's achievements in the last couple years include cutting annual operating expenses by $9 billion and successfully brokering a deal between the UAW and bankrupt parts maker Delphi Corp.
The new, four-year contract with the UAW, ratified by rank-and-file workers on Wednesday, will offload billions in retiree obligations and create a lower-paid tier of autoworker.
At the same time, new cars and trucks are winning GM high praise. In January, the Chevrolet Silverado pickup and Saturn Aura sedan won car- and truck-of-the-year awards at the Detroit auto show.
Despite the success, challenges before the No. 1 U.S. car company remain significant. GM lost more than $12 billion in 2005 and 2006. Leaner and healthier foreign-based rivals continue to steal away customers, while improving in their own rights.
GM still hasn't managed to turn a consistent profit in North America. It has yet to produce a hybrid vehicle that can compete with the hot-selling Toyota Prius. And, while GM set out to increase U.S. market share, the opposite has been true so far this year. Toyota outsold GM for the first time in history in this year's first quarter. GM managed to best Toyota in the second quarter.
“At the end of day, they can archive all sorts of success cutting the cost structure,” Phillippi said. “But you've got to drive revenue.”
UAW pact aids investors
Along with GM, the UAW deserves significant credit for the changes under way, said auto analyst John Casesa of the Casesa Shapiro Group.
“Not only does it provide tangible benefits, but it also sends a signal to investors that the union is wiling to be constructive to help save the domestic auto industry,” Casesa said of the labor contract. Two years ago, the union agreed to mid-contract concessions that saved GM and Ford Motor Co. billions on health care.
Concessions in the new deal surpassed expectations. Not only did the union sign off on the creation of a massive company-funded, union run trust to finance retiree health care, it agreed to a second tier of lower-paid autoworkers and restrictions on the jobs bank that pays laid-off workers.
“Some may have noticed GM's stock took a huge leap the instant word got out that health care benefits for future and current retirees will be funded by” the new trust for retirees, UAW Local President Doug Rademacher wrote in a recent newsletter to workers. “This was a critical move toward growing GM out of its financial crisis–at least in the eyes of the Wall Street nay-sayers.”
