Are better times ahead for General Motors? Wall Street seems to think so.
After a year and a half of mediocre performance, GM’s share price is making a strong comeback, rising about 50 percent from a low seen in late 2005, when GM announced plans to cut 30,000 hourly jobs and close 12 facilities by 2008.
News last week that GM has agreed to sell its Allison Transmission commercial and military business to private investment firms The Carlyle Group and Toronto-based Onex pushed its share price to a two-year high.
The deal adds funds to GM’s reserves, although it also means the U.S. automaker is losing a profitable division. But investors also seem to be betting that GM will see a profitable outcome from its crucial contract negotiations later this year with the United Auto Workers — one of the largest labor unions in North America.
Last week, the UAW said its members approved a contract agreement with auto parts maker Delphi that cuts wages and allows some plant closings, sealing a deal after two years of contentious talks. The deal averts a threatened strike that would have crippled GM, which is Delphi’s former parent company.
GM’s own contract with the UAW expires Sept. 14, and if the automaker can strike a deal with the UAW to lessen health care and other benefits for current employees and retirees, GM’s share price could move higher, analysts say.
Another boost for GM has come in the form of stronger sales from generous month-end consumer discounts, according to Lehman Brothers analyst Brian Johnson. Last month, GM and Ford began offering qualified buyers zero-percent financing for three years plus additional cash on select vehicles to boost sales at the end of the month.
“Sales appear to have picked up nicely in June, following the lackluster selling rate of the past three months,” Johnson said. “This is largely due to a sizable increase in incentives so far this month, and the generous new marketing programs.”
Detroit’s “Big Three” automakers have been struggling to hold their retail market share amid high gas prices and strong competition from Asian rivals selling vehicles in the United States. Automakers will report June auto sales Tuesday afternoon.