GM still looks risky
Dear Mr. Berko:
I bought 150 shares of General Motors Co. on the offering at $33, and it’s now $39. You made a big mistake criticizing this great company just before it went public again, because it will soon become one of the greatest and biggest companies in America again. Do you have the guts to admit that you were wrong? GM has paid back all the money it owes the government, and my broker told me that the company will earn more than $4 a share this year. GM management, GM employees, the United Auto Workers union and GM’s suppliers are stronger than ever and working together to make the best product in the world. You were wrong, and I think you owe your readers an apology for bashing a great company. Would you buy the stock now?
S.T., Troy, Mich.
Dear S.T.:
I suggested to readers that they might sell their GM stock if it moved to a premium after the November initial public offering, and the wallahs on the Street suggest that it could run up to $41-$43. You’re right, I was wrong. I didn’t think GM would trade at that price. But don’t make the mistake of ascribing long-term results to short-term consequences.
The United Auto Workers (UAW) still has a stranglehold on management, and the average $60-per-hour wage earned by union employees does not augur well for GM’s long-term stability. When GM pays unskilled union employees $60 an hour, that’s a prelude to corporate suicide.
Wages of $60 an hour compute to $2,400 a week or $125,000 a year. As Yogi Berra would say, “It’s deja vu all over again.” GM declared bankruptcy, borrowed $50 billion from the government and promised its shareholders it would toe the line on costs. Well, holy guacamole and tiramisu too, a $125,000 yearly paycheck for union employees sticks in my craw considering that the average U.S. household earned $49,000 in 2010.
Meanwhile, GM still owes billions to the U.S. Treasury Department, which still owns 26 percent of GM. The company must sell its remaining stock at $53 a share just to break even. Frankly, I think a $53 stock price is a “long way from San Jose.”
I hope the automobile industry is in the stage of a solid uptrend, but unless GM’s management can get the UAW to tone down its wage demands, that uptrend won’t become a reality. The collective bargaining agreement between GM and the UAW expires this September. And though the union has agreed not to strike until September 2015 (which means it will strike in four years), the UAW is aggressively seeking to get back what it gave up during bankruptcy. An agreement not to strike doesn’t preclude worker walkouts, slowdowns or stoppages to force concessions.
Union work rules, wage demands and retirement benefits, and lousy corporate management helped bring GM to its knees. I don’t see much change ahead.
I want GM to succeed, and I think it can – but not with the quick success some think it will. The U.S. market is becoming crowded, as Volkswagen and Hyundai usurp customers from GM, and a weak, slow economic recovery plus high unemployment rates will dampen a GM recovery. I still would not buy the stock.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. ©2011 Creators.com
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