A Buy Rating on General Motors That Has Nothing To Do With New Products

Posted by: David Kiley on July 5, 2007

Robert Barry of Goldman Sachs has a “buy’ rating on General Motors even after the big automaker posted a huge 26% decline in sales for June. He also notes that GM’s most solid performer, full-size pickups, is under pressure from increasing incentives from Toyota for its Tundra pickup. Tundra has big discounts, as much as $5,000 in some retail ads, as well as five-year 0-percent lending. GM truck inventories are running at 107 days of inventory. That’s too high.

The reasoning for Barry’s “buy” rating haas nothing to do with GM’s products (which, in my opinion, have never been better in terms of design and quality), but rather with the increasing liklihood that the UAW will have little choice but to agree to more planat closings and a transformative health-care deal in this summer’s contract negotiations.

Barry wrote this week after June sales clocked in at an anemic annualized rate of 15.6 million, down about one million on an annualized basis: “June sales highlight that significant re-scaling of GM and Ford remains to be done, on the revenue and cost fronts. Our Buy rating on GM stock reflects our view significant concessions that advance re-scaling efforts are likely out of 2007 talks. If data points such as June sales don’t make UAW members seriously consider an OPEB (Other Post Employment Benefits)deal and other downsizing measures, we’re not sure what would.”

I sat down with UAW president Ron Gettelfinger a few weeks ago and discussed the state of the Big-Three and this year’s negotiations. In true Gettelfinger style, he revealed little. But there was one thing he did knock down again and again. That was the idea that the UAW needed to give up anything “transformative” this year. Could be a long summer in Detroit.

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