Goldman Upgrades GM On Likely Concessions During Upcoming UAW Negotiations

Analysts at Goldman Sachs are betting the United Auto Workers Union will offer General Motors Corp. (GM) some juicy concessions in upcoming contract talks that will make the stock a lot more attractive in the near term.

They’re upgrading the shares to "buy" from "neutral." At US$35 a share, the stock is pricing in a level of concessions that are highly probable, the analysts wrote in a report Monday.

That implies little to no downside and potentially large upside from the real possibility concessions end up even larger than what is priced in, the Goldman team wrote.

“To be clear, we see GM’s long term fundamental outlook a challenge due to volume mix and pricing pressures. But we think GM can make a compelling case to UAW members that material wage and/or benefit cuts are needed. And we suspect members and retirees are increasingly amenable to such cuts. We think that translates into progress on healthcare costs, work rules, and potentially on wages in 2007 union talks.”

Goldman has a 3-month target of US$42 on GM shares.

Ron Gettelfinger, the UAW president, has made comments recently suggesting he understands the competitive situation of GM and its Detroit rivals and that the union plays a role in right-sizing the automakers’ business.

Since 1998, prices for new cars and trucks have fallen by 3.9% in the United States while health care costs for employees have risen 74.3% over the same time, according to the Center for Automotive Research in Ann Arbor, Michigan.

As of this past January, GM had the lowest revenue per vehicle of any automaker in the United States. GM's shares rose as high as US$36.84 in trading Monday on the New York Stock Exchange.

GM 1-yr chart: