Bill Totten's Weblog

Thursday, February 09, 2006

Choice words

Note choice of words in third paragraph: GM executives plan to CUT white-collar pension and health-care expenses, and SLASH dividends, but only TRIM their own salaries. Bill

GM Shares Drop on Deutsche Bank

Associated Press (February 08 2006)

General Motors Corporation shares fell on Wednesday after the company received more bad news - this time from Deutsche Bank, which advised shareholders to sell the stock because of continued uncertainty over the company's financial future.

Rod Lache, an analyst with Deutsche Bank, issued a rare "Sell" rating and lowered his price target on GM shares to $17 from $22. The stock - which slid 2.3 percent on Tuesday - lost another 82 cents, or about 3.6 percent, to close at $21.99 Wednesday on the New York Stock Exchange.

The world's largest automaker on Tuesday outlined a plan to cut white-collar pension and health-care expenses, slash its dividend and trim executive salaries as part of its latest bid to avert bankruptcy. However, the cuts did not get a strong endorsement from Wall Street analysts.

"We continue to be disappointed by the limited cash savings targeted by current restructuring efforts", Lache said in a report. "Our concerns go beyond the ongoing market share erosion, uncertainty over the GMAC sale, and uncertainty over (parts supplier) Delphi".

GM said the cut in its dividend alone will reduce GM's yearly cash payout by about $565 million. Cash savings from the health-care changes will grow to about $200 million within five years.

However, analysts continue to be concerned about the progress of GM's attempt to sell a majority stake in financing arm General Motors Acceptance Corporation.
There is also continued uncertainty on the restructuring of former parts division Delphi Corporation, which filed for bankruptcy protection in the fall.

Lache said the latest round of cuts is seen as a way for GM to come back and ask union workers for more concessions. He said there appears to "be an ever increasing probability of confrontation with the United Auto Workers". UAW President Ron Gettelfinger said the cuts won't lead to future concessions.

However, Goldman Sachs analyst Robert Barry believes the tactic just might work.

"We see UAW concessions as a recurring theme at GM, to which the dividend cut is a necessary prerequisite", he said in a report. "We think UAW leaders know that pressures on GM's fundamentals are not going to abate soon and that they will need to sacrifice wages and/or benefits of more members in the future".

The biggest threat to GM's stability still remains a union strike at Delphi, Bear Stearns analyst Peter Nesvold said in a report. Negotiations involving the United Auto Workers, General Motors and Delphi appear to have made little progress on the restructuring of the parts maker.

Delphi, which filed for bankruptcy on October 8, has said it may ask a judge to cancel its contracts if it doesn't reach an agreement by February 17. The UAW represents about seventy percent of Delphi's 34,000 hourly workers. The union has been vocal in its opposition to Delphi's plan to lower wages and benefits as part of its restructuring.

"In any event, we continue to believe that a voluntary near-term bankruptcy for GM/GMAC is of very low probability", Nesvold said. "We continue to believe that the biggest risk arguably would be a UAW strike at Delphi ... our sense currently is that a significant labor disruption at Delphi remains a remote likelihood."

Copyright 2006 The Associated Press. All rights reserved.

Bill Totten


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