As if General Motors did not have enough challenges to contend with, the UAW is now offering up some bellicose talk regarding upcoming labor contract negotiations. I discussed this issue last night with Neil Cavuto on Fox Business Network.
UAW Local 900 Plant Chairman, Bill Johnson, states, “If they don’t restore everything (union workers) gave up, the membership is going to knock it down. The bonuses that were just announced are just ridiculous.” While Johnson’s comments may be aimed at Ford, the UAW is signaling it will take a hard line stance in negotiations at GM as well. Union leaders are meeting this week to prepare for this summer’s negotiations on contracts that expire Sept. 14th.
It is debatable that the UAW sacrificed so much in the GM bankruptcy proceeding, particularly compared to GM bondholders who unwillingly subordinated their legal standing as creditors to the UAW, courtesy of the Obama Administration. One of the perceived sacrifices for the UAW was that laid off workers would not be paid while not working. That would seem reasonable to most, but recently laid off workers in Buffalo, NY are still receiving 75% of their pay. Also, GM continues to contribute billions of dollars to the UAW benefits fund. And while Johnson may believe that a $4,500 bonus for each GM factory worker is ridiculously low, many taxpayers feel that it is ridiculous that bailed out GM is giving bonuses out at all!
The UAW hard line stand comes at a time when GM is tackling other challenges. Recent reports state that GM CEO, Dan Akerson, circulated a memo requesting a cut in non-essential spending and travel due to the uncertainty surrounding Japanese parts availability. Today GM announced that it is selling $1 billion of its Ally preferred stock to strengthen its balance sheet. The fact that there are concerns with cash flow less than two weeks after CFO, Chris Liddell, suddenly resigned may be an indication that the financial health of GM is worse than previously projected.
The performance of GM stock serves as a barometer for the financial well-being of the company. Shares continue to drop, reflecting a lack of confidence in the company. Since GM opened trading after its IPO, shares are underperforming broader markets by about 20%. That is horrible performance, especially considering that out of 15 analysts covering GM, 11 rate the stock a “buy” or “strong buy.” Only four analysts have a “hold” rating and not one has a “sell” rating. Analysts who work for firms that were underwriters for GM’s IPO are losing credibility. Evidently, the big Investment Houses that tell others to buy GM shares are not putting their money where their mouths are. If the smart money were placing large bets on GM, the share price would not be underperforming the way it is.
The recent challenges to GM have not dampened analysts’ optimism. Morgan Stanley, one of GM’s lead underwriters, recently reiterated its “overweight” rating on the stock. I also noticed another source hyping GM shares recently. Commentary from “an independent investor or market observer” that goes by the name of Trefis has publicized a price target of $45 for GM shares. Interestingly, this recommendation was given on two websites, thestreet.com and Forbes. Oddly enough, these same two sites ran similar pieces by the same source about a month previous. I’m wondering if this is legitimate analysis or planted information. Whatever the case, it is beginning to look like many are still making an effort to pump GM shares while the stock price indicates that many more are dumping.
I can recall when one auto industry commentator on a major business network stated that investors were waiting to see a couple of more earnings reports and then GM shares would either hover around where they were or take off. One would infer that a GM share price decline was not an option. The statement was made when GM was trading in the high 30s. My own opinion is that after another couple of earnings reports we will see if GM has really made a successful transformation or if they are headed towards a second bankruptcy.