Skilled Trades Association, CAW Local 199 St. Catharines (General Motors Unit) | ||||||
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GM cut at Smith Barney
General Motors Corp. would need to slash as much as 20 per cent of its existing production capacity to bring it in line with the auto-making giant's market share, a move which would affect up to 25,000 employees, according to estimates from Smith Barney analyst Jon Rogers. Mr. Rogers said Thursday in a report that GM production capacity represented 33.2 per cent of the North American industry's total capacity last year but its market share is just 26 per cent. “That seven percentage points of excess capacity is the highest among all major auto makers,” he said. It contrasts with Ford Motor Co.'s 4 percentage points and DaimlerChrysler AG's 2 percentage points. Mr. Rogers noted that GM has already taken a first step towards reducing capacity with its announcement in March that it was closing the Grand Am/Malibu plant in Lansing, Mich., laying off about 3,000 employees. “Management would need to effect five more similar-sized actions to right-size the North American business, in our view,” the analyst said. Mr. Rogers cut GM shares to “sell-high risk” from “hold-high risk.” “Our sell rating reflects increased risk of a dividend cut in front of a painful but necessary restructuring that could consume up to $4-billion [U.S.] in cash,” he said, adding he sees “further downside risk to GM shares as a result of a potential credit rating downgrade.” He also slashed his 2006 share profit estimate for GM to $2.14 a share from $3.33 and cut his price target for GM to $24 a share from $32. GM shares gained 67 cents to $30.53 on the New York Stock Exchange Thursday. Mr. Rogers also lowered his rating on Ford shares and lowered his price target. He cut his recommendation on Ford to “hold-high risk” from “buy-high risk,” saying that “while management is taking the right steps from a product and capacity standpoint, we believe it will be difficult to avoid the ripple effects of GM's woes on volume and pricing.” | ||||||
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