Image Shown: Shares of General Motors had come under fire over concerns regarding the extended UAW strike over the past several weeks, but with the strike now over, shares of GM may begin to converge back towards their intrinsic value.
By Callum Turcan
On Friday October 25, General Motors (GM) ratified a four-year deal with the United Automobile Workers union to end the 40-day long strike at its US factories, which had crippled the company’s North American operations. The deal covers ~46,000-48,000 unionized employees and has major ramifications for previous and future employees as well. General Motors is a holding in both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios, and we continue to like the name. Shares of GM yield 4.1% as of this writing, and we assign GM a fair value estimate of $48 per share, materially above where shares are trading at as of the end of trading on October 25.
General Motors’ UAW employees won an $11,000 ratification bonus, a faster timeline for manufacturing workers to reach the top pay grade, no change to one of the most generous healthcare plans in the US for private workers (for both existing and past employees), a better pathway for temporary hires to become permanent employees, pay increases, a more generous profit sharing arrangement (particularly when times are good), and a commitment from General Motors to invest $7.7 billion in the automaker’s US manufacturing operations including having the Detroit-Hamtramck Assembly plant build a line-up of new electric pickup trucks. The GM Lordstown Complex will be sold to Lordstown Motors Corp, a recently created privately held company that plans to build electric vehicles at the site.
For General Motors, the company was a bigger winner than at first glance. While the strike reportedly will cost the company north of $2.0 billion on a pre-tax basis, General Motors was successful at getting several of its underutilized factories closed. Americans want SUVs, crossovers, and pickup trucks, not passenger cars, so maintaining factories set up to meet demand that isn’t there just doesn’t make sense on an economic basis. We see this deal as being a win-win and part of General Motors’ ability to continue improving its cost structure by removing underutilized assets from its operations while keeping in mind the company often needs approval from the union in order to do so. The pay increases are reasonable, and given that underutilized factories are shutting down, we think General Motors’ cost structure will keep getting better over the coming quarters and years ahead.
Auto Making Industry – F GM HOG HMC TSLA TM
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Related: CARZ, ADRA, RXI
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Callum Turcan does not own shares in any of the securities mentioned above. General Motors Company (GM) is included in Valuentum’s simulated Best Ideas Newsletter portfolio and simulated Dividend Growth Newsletter portfolio. Some of the other companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.