General Motors' deal with Delphi and the United Autoworkers Union is positive news for the carmaker, as it allows GM to trim its own work force and that of its largest parts supplier. But cutting labor costs is only one of GM's challenges. The troubled carmaker continues to lose market share to competitors with more-popular products, and employee health-care and retiree costs remain a heavy burden. With the road ahead still strewn with obstacles, investors would be wise to avoid this painful ride.
The UAW agreement, which offers early retirement to some Delphi and GM workers and gives certain Delphi workers the opportunity to return to GM, averts what would have been a debilitating strike (GM spun off Delphi in 1999). But the deal doesn't come cheap: GM will likely pay billions of dollars for the worker buyouts. And the negotiating isn't over. "Unfortunately, critical issues such as hourly worker pay concessions have yet to be resolved," says Standard & Poor's analyst Efraim Levy.
The number-one U.S. carmaker hemorrhaged red ink in 2005, reporting a loss of $8.6 billion -- its worst result since 1992 (and management recently said that it would restate its 2005 earnings report, adding about $2 billion more of red ink to the bottom line). GM hopes that its cost-cutting plan, which involves closing factories and reducing wages and benefits, including retiree benefits, will help cover the gap left by slumping sales. "GM's current strategy, although not explicitly stated, is to survive while shrinking to profitability," says Morningstar analyst John Novak. The company also cut its dividend in half recently.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
GM is trying to bring production more in line with declining sales. But because cost-cutting can only go so far, GM also must boost sales by developing more cars that consumers want -- something it's had a hard time doing lately. GM faces an uphill battle competing with Toyota, Honda, Nissan and other foreign brands. Levy expects the company to continue to lose market share, although he holds out hope that GM's new line of trucks and utility vehicles will help return the company to profitability in 2006. Analysts, on average, expect the company to lose 20 cents per share in 2006, according to Thomson First Call.
Both SP and Morningstar recommend selling the stock (symbol GM), recently $22.
--Lisa Dixon
-
Americans, Even With Higher Incomes, Are Feeling the SqueezeA 50-year mortgage probably isn’t the answer, but there are other ways to alleviate the continuing sting of high prices
-
Hiding the Truth From Your Financial Adviser Can Cost YouHiding assets or debt from a financial adviser damages the relationship as well as your finances. If you're not being fully transparent, it's time to ask why.
-
How to Manage a Disagreement With Your Financial AdviserKnowing how to deal with a disagreement can improve both your finances and your relationship with your planner.
-
If You'd Put $1,000 Into Caterpillar Stock 20 Years Ago, Here's What You'd Have TodayCaterpillar stock has been a remarkably resilient market beater for a very long time.
-
I'm a 55-Year-Old Dad. Here’s How My 28-Year-Old Daughter Showed Me That AXP Is Still a Solid InvestmentAmerican Express stock is still a solid investment because management understands the value of its brand and is building a wide moat around it.
-
If You'd Put $1,000 Into AMD Stock 20 Years Ago, Here's What You'd Have TodayAdvanced Micro Devices stock is soaring thanks to AI, but as a buy-and-hold bet, it's been a market laggard.
-
S&P 500 Hits New High Before Big Tech Earnings, Fed: Stock Market TodayThe tech-heavy Nasdaq also shone in Tuesday's session, while UnitedHealth dragged on the blue-chip Dow Jones Industrial Average.
-
If You'd Put $1,000 Into UPS Stock 20 Years Ago, Here's What You'd Have TodayUnited Parcel Service stock has been a massive long-term laggard.
-
How the Stock Market Performed in the First Year of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You'd Put $1,000 Into Lowe's Stock 20 Years Ago, Here's What You'd Have TodayLowe's stock has delivered disappointing returns recently, but it's been a great holding for truly patient investors.
-
If You'd Put $1,000 Into 3M Stock 20 Years Ago, Here's What You'd Have TodayMMM stock has been a pit of despair for truly long-term shareholders.
