What Killed GM’s Rally?

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The rally in GM’s (GM) stock was short-lived. Actually, it is dead.

The company’s shares did not even reach a 52-week high after news of it big settlement with the UAW. Wall St. had been so keen on $51 billion of health-care liabilities moving the the union. It should save the big car company $5 billion a year. That, all by itself, could go a very long way to making GM’s troubled North American operations profitable.

On yesterday’s big run, the June share price peak of almost $39 was never really threatened. The news was so good, it must have been painful for investors not to have seen $40 or even $45.

GM is entering a new age. That is what the media says. The cost advantages that the Japanese have are disappearing.

But, someone forgot to mention that cutting costs does not do much if revenue keeps falling. And, that is what the share price is telling the market now.

GM’s US market share was 46% in 1980. That figure is below 25% today. Could it drop to 20%? Certainly, if Toyota (TM) has more sales growth than the Big Three each month. And, there is very little sign that an end to that is anywhere around the corner.

All GM got from the UAW was a stay of execution. Nothing more. If GM’s sales over the next couple of months continue negative comparisons with 2006, the company’s stock will just keep falling.

Douglas A. McIntyre