In an interview in Barron's this week, Chris Ceraso of First Boston says that General Motors (NYSE: GM) stock will move to $40, if it gets a "reasonably good deal" from the UAW.
It appears that the "good deal" may be just around the corner. As GM and the UAW prepare for the next set of bargaining sessions. a large number of media outlets, including MarketWatch, say that the agreement to move GM's $55 billion liability for worker health care into a fund controlled by the union is nearly done. The new arrangement would also save GM about $5 billion in annual expenses.
The open issue in moving the fund is how much GM will have to pay into the new pool. The number could certainly be above $30 billion, which means GM might have to raise some of the money. Or, a portion of the dollars could go in as GM stock.
In many ways the deal is better for the UAW than it is for GM. Once the new health benefit pool is set up, the union needs to run it prudently to make sure that it can handle worker benefits for the years to come. But, no matter which GM's costs will have been cut, it still has to reverse the market share decline that it has suffered in the U.S. at the hands of Japanese car markers. Lower costs-per-vehicle may help, but can't make up entirely for ongoing drops in sales.
First Boston may be right, GM's shares my go to $40, but, If revenue keeps slipping, it won't be there for long.
Douglas A. McIntyre is a partner at 24/7 Wall St.
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