Behind the Wheel with Phil Lebeau

Is GM Really Worth Buying?

General Motors

As I woke in Detroit after flying in from New York this morning, I saw the story on "Squawk Box," - another Wall St. firm had raised GM to a buy rating. Why? Primarily on the idea that GM's $17 billion surplus on it's pension wil give it the leverage needed to strike a better deal with the UAW regarding retiree healthcare costs.

This has become the latest idea to buy into among investors - that the albatross that has hung around the neck of domestic automakers (retiree obligations-including healthcare) will be dismantled in the upcoming UAW contract talks.

Good Year

The idea comes from the fact Goodyear Tire was able to work out a deal with the United Steel Workers whereby the company and the union set up a seperate entity that will handle the retiree benefits. Goodyear paid a healthy chunk of money to make sure the plan is funded and, going forward, it will be up to this seperate entitiy to manage the retiree plan. Sounds great. And hey, if it can work for the steel workers and Goodyear, why shouldn't it work for the UAW and GM?

Well, getting from the current benefit plan to a seperate one for UAW retirees won't be easy.

For starters, the steel workers agreed to cap benefits. Will the UAW be willing to do the same thing. Also, would GM and the UAW be able to agree on a a funding price? Surely the union will want a substantial amount to make sure any plan run by an independant third party is fully funded. GM has cash on hand, but how much will be enough to provide the funding the UAW might want?

I think the Goodyear plan is one GM would like to impliment. I'm just not sure the UAW is to the point of saying, "let's do it". And if the UAW went along with the idea, would it give GM less leverage in other areas like closing down the jobs bank and eliminating job classifications.

If you think this will happen, GMin the mid 30's could be a heck of a buy. But remember, this is a company that is not yet cash flow positive (it still hasn't filed Q4 earnings) and continues to lose market share.

Questions?  Comments?