Monday, May 29, 2006

GM shares are up - but don't throw a Motown party yet

Monday, May 29, 2006
Daniel Howes

GM shares are up - but don't throw a Motown party yet

Why, the reader wanted to know, "would GM stock go up when the company faces bankruptcy?"

My reply: "Who said GM faces bankruptcy?"

A big chunk of the conventional wisdom, that's who. But conventional wisdom in a dynamic global business, influenced every day by human decisions good and bad and buffeted by brutal economic forces, has an annoying tendency to be mistaken - and usually unrepentant whenever it's wrong.

Don't look now but shares in General Motors Corp., the purportedly oafish behemoth that defines Old Economy ineptitude, are a top performer on the bellwether Dow Jones Industrial Average. Analysts who just a few months ago had given the General up for dead are upgrading the stock. And hourly workers are fixing to flee the plants in droves.

Altogether this amounts to one thing: An easing of the pressure that just a few months ago marked Chairman Rick Wagoner Detroit's Dead Man Walking. He may still be, but the trend of the past few weeks suggests that would be a harder case to make inside the boardroom.

Is the reprieve fleeting?

The landmark buyout offer targeted to eliminate 20,000 hourly workers from GM's payroll is past that internal bogey and climbing, with four weeks to go before the June 23 deadline. Translation: More people leaving means less pressure on GM and what it needs to solve the conundrum called Delphi Corp.

Second, financial markets reward measurable progress, not spin. Yes, there's still a chance - despite the greater-than-expected response to buyouts by GM and bankrupt Delphi - that the former GM parts unit won't be able to reach a concessionary deal with the United Auto Workers, among others, and they'll strike.

But I'm guessing the likelihood of a strike diminishes in inverse proportion to the number of union members who head for the exits. Why? Because union negotiators will have fresh impetus to get a deal that doesn't screw up the futures of all those new retirees - and an ugly strike would do just that.

Third, GM is doing a fairly effective job making its public case and its new cars and trucks are helping - not perfect and not always believable, but credible. The full-size SUVs are off to a promising start; new Saturns, decidedly unlike the plasticky Saturns of old, are just around the corner.

Nasty surprises can kill

If, however, inventory levels get too high as we get deeper into the summer and sales boss Mark LaNeve can't resist the urge to crank up the incentives, then GM and Wagoner will slide back into the hole they've been climbing out of the past six months or so. And predictions of his imminent ouster will come roaring back.

They'll revive if there's another nasty surprise from the federal investigations into GM's accounting practices. Or if another ratings downgrade imperils the GMAC deal with Cerberus. Or if the easing of gas prices from the $3-a-gallon range reverses course and stays there.

Never one to say it straight when a sports analogy will do, Wagoner likens GM's predicament to being down 20 points at half-time, and his job is leading the team to a comeback. GM is still down, but it's closing gaps.

Want a sure thing? Buy a dog, but don't bet on the end of GM. It ain't a sure thing.

Daniel Howes' column runs Mondays, Wednesdays and Fridays. Reach him at or (313) 222-2106.


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