Traverse City Record-Eagle

Business

September 28, 2012

GM stocks get 'hold' rating

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DETROIT (AP) — A Wall Street analyst said Thursday that he's waiting for more clarity on capacity reductions at General Motors Co.'s factories, and on several other issues, before he recommends buying or selling stock in the automaker.

Stifel Nicolaus analyst James Albertine began coverage of GM by giving the automaker a "Hold" rating.

GM is a leader in a multi-year auto industry restructuring and turnaround, Albertine wrote in a note to investors. But he gave the company's stock the "Hold" rating as he waits for further clarity on factory capacity reduction, mainly in Europe; whether GM's sales growth can keep up with the market in the U.S.; and whether consumers will accept GM's small and midsize cars and crossover sport utility vehicles.

He also wants to know what steps GM will take in the future to shore up its underfunded pension plans and to get rid of the U.S. government's ownership stake in the company.

"All goes well, we see substantial upside to the story driven by rebounding U.S. vehicle sales and GM's leading position in the (still) rapidly expanding Chinese automotive market," Albertine wrote. "However, risks to the story are awesome and the turnaround effort unprecedented." The rating didn't appear to hit GM shares hard. They were flat at $23.39 in Thursday morning trading and later fell less than 1 percent to close at $23.18. The stock has surged since bottoming out in July at $18.72.

GM spokesman Jim Cain would not comment on the analyst note.

GM made $2.5 billion through the first half of the year, but it's predicting slower profits in the second half as losses continue in Europe. GM has lost money in Europe for a dozen years, and posted a $361 million pretax loss there in the second quarter.

Although the company is using most of its factory space in North America, analysts say it has 20 percent to 30 percent more capacity than it needs in Europe. Restructuring there is difficult because of strong unions and government job-protection laws.

GM's U.S. sales also are lagging behind overall market growth in the U.S.

Through August, U.S. sales grew 3.7 percent over a year earlier, but the whole market grew almost 15 percent.

The company also is working to cut the risk of running its pension plans worldwide. GM's global pension plan assets are $24 billion shy of their obligations. Earlier this year, the company shifted $26 billion in U.S. salaried pension liability to an insurance company annuity, and it may do the same with blue-collar plans.

GM, once known as a truck and SUV company, has made some inroads in U.S. car markets where it previously wasn't competitive. GM has sold almost 155,000 Chevrolet Cruze compact cars this year. That's down more than 8 percent from last year, but still far stronger than before the Cruze was introduced in 2010. Last year was particularly good for the Cruze because its main competitors, the Honda Civic and Toyota Corolla, where in short supply after an earthquake hobbled the Japanese automakers' factories in Japan. The Chevrolet Sonic is the top-selling subcompact in the U.S., at 57,000 through August.

According to a Stifel Nicolaus survey of 600 U.S. families, consumers want to buy new vehicles over used ones, and they prefer U.S.-based brands over foreign ones.

"We believe tail winds exist supporting the recovery of domestic vehicle assemblers like GM," Albertine wrote.

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