GM’s (GM) stock has doubled in 18 months to over $38. There are ample reasons. A settlement of the UAW’s fight with GM parts supplier Delphi fixes the amount of the large car company’s obligations to its former division. It also averts a strike at Delphi which could shut GM down.
GM has sliced $9 billion a year from annual costs. Folks like Kirk Kerkorian and Nissan’s Carlos Ghosn said that it could not be done. But, they took the last train out of town.
And, Wall St. thinks that the UAW has finally come around to the reality of needing to help US manufacturers with some relief on pension and medical benefits. If GM can strike a good deal with the union, its costs should improve even more.
The Wall Street Journal says that the gain in GM’s stock may be a sucker rally. The paper puts it this way: "GM’s business is still under stress. It is burning cash, its core North American operations aren’t making money and several broad industry trends are combining to damp its ability to boost revenue."
Unfortunately for GM, there may be some truth that North American sales growth will continue to be hard to come by. Credit Suisse predicts that GM’s US sales could have dropped as much as 13% in June. If that trend continues, making money in its home market may be very hard for the car company.
But, the focus on North America may miss much of the point about GM. The company is doing OK in Europe. It is, along with joint venture partners, the No. 1 car company in China. It is moving into India, and the options of closing down some of its US brands is still a potential hole card.
As GM gets stronger overseas, management’s goal in the US may simply be to hit a cash break-even. Having a profit in North America may not even be in the play book.
Douglas A. McIntyre can be reached at [email protected].
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