‘Buy’ Advice Drives Up GM Stock
General Motors Corp.’s stock rose 8% on Wednesday after a Merrill Lynch analyst issued a strong “buy” recommendation, citing a comment from United Auto Workers officials that 12,400 union workers had accepted buyouts from the beleaguered automaker.
Investors were so pleased with the news, after the report by Merrill Lynch auto industry analyst John Murphy, that GM’s shares gained $2.03 in heavy trading to close at $26.51.
GM announced buyouts and early-retirement incentives in March that were worth as much as $114,000 to 113,000 union workers in a bid to trim its payroll and future pension and healthcare costs.
The automaker is struggling to recover from a $10.6-billion loss last year and to stop a three-decade decline in its share of the U.S. passenger vehicle market. Chief Executive Rick Wagoner plans to close nine factories and three parts depots by 2008 to cut annual costs by $7 billion.
GM never announced the number of employees it would like to accept the buyout offers, but executives have said they hope the plan will get the carmaker closer to its goal of a 30,000-job reduction in North America.
The company has said it would like to achieve this without widespread layoffs.
According to the Merrill Lynch report, UAW officials have said that 12,400 union members who work for GM had accepted the buyouts as of May 3. GM declined to comment.
But a knowledgeable GM insider, speaking on condition of anonymity, said nearly 15,000 workers had accepted the buyout package.
Workers have until June 23 to accept the buyout and early-retirement offers.
GM did acknowledge Wednesday that it had begun hiring temporary employees in anticipation of labor shortages this summer as workers who accepted the buyouts begin leaving.
“Very few people have left so far, though,” said GM spokesman Dan Flores.
The temporary workers will become UAW members for the duration of their stints at GM, but will be paid only about two-thirds of what regular workers earn and will not receive health or pension benefits, Flores said.
The apparently sizable number of union workers willing to accept GM’s buyout offer “is good for GM,” said David Healy, an auto analyst at Burnham Securities. “It is impossible for GM to continue the way it was.”
Separately Wednesday, GM requested a delay of up to two months in hearings in U.S. Bankruptcy Court on a bid by Delphi Corp., its largest parts supplier, to void its labor contracts in order to impose sharply reduced wages on its workers.
The judge did not issue a ruling, according to GM. Another court hearing is scheduled for Friday.
GM has a huge stake in the Delphi Chapter 11 filing and is trying to broker an out-of-court agreement.
The UAW has threatened to strike if its Delphi contract is canceled and that could quickly halt GM’s U.S. production.
Although a strike against Delphi remains a major risk, analyst Murphy said in his report that the rapid trimming of GM’s payroll made the stock an attractive buy.
“GM and its shareholders are clearly better off if buyouts are widely accepted.... A worker accepting the buyout is contributing to the health of GM,” he wrote.
