With a newly drafted labor deal from the United Auto Workers looking optimistic, General Motors (GM) is ready to claim more precious market share from scandal-plagued Volkswagen (VLKAY), and GM stock is primed to benefit in the long run.
General Motors and the United Auto Workers have landed on terms for a four-year labor contract. The tentative deal averts a strike for the Detroit-based automaker that could have damaged production flow and the company’s bottom line. The plan is expected to get approval by UAW leaders on Wednesday.
The terms of that agreement have not been announced, but the deal will affect about 52,600 GM workers.
GM can move forward to focus on competing for the autobuyers that Volkswagon is losing in droves after it lost consumer trust when the German automaker was caught deliberately installing manipulative software that cheated emissions tests in millions of vehicles.
With Volkswagen grappling with the fallout, Toyota Motors (TM) has claimed the title of world’s largest automaker by sales in the third-quarter from Volkswagen. General Motors was at one time the top victor in worldwide sales, but is now ranked third, with 7.15 million cars sold during the first three quarters of the year.
GM stock was down about 1% early in Monday’s session, although it remains up 2% for the year. With a price-to-earnings ratio of 13, GM stock’s valuation is about in the middle of its automaker peers, including Ford (F) with 16.8 and Toyota with 10.8.
General Motors is indeed ready to get aggressive. Last week, the company said it is nearly doubling its workforce at Detroit-Hamtramck Assembly with a second shift and more than 1,200 more jobs in an effort to meet expected market demand. That plant currently builds the Chevrolet Volt, Impala and Malibu, and will begin production on the Cadillac CT6 in early 2016.
GM Stock Will Keep the Motor Running
Last week, General Motors reported third-quarter net income of $1.4 billion, or 84 cents per share, compared to $1.4 billion, or 81 cents per share a year prior. Adjusted earnings were up 55% year-over-year, hitting $1.50 per share and beating Street estimates of $1.19. Margins improved to 8%.
GM wants to preserve that kind of financial strength during the union negotiations.
Like all major automakers, GM has a strong presence in China, where sales have been stagnating. However, China’s market has not had much of a negative impact on GM’s bottom line as third-quarter sales there were about on par with the prior year, with healthy net income margins of 9.8%.
As for the upcoming contract with its auto workers, GM will likely model the UAW deal after a deal the union reached with Fiat Chrysler (FCAU) earlier this month. Although, as a larger automaker, GM could cede to stronger demands from UAW than Fiat did.
The bottom line: With GM ready to avert a strike to its production, which could have cost millions in revenue, GM stock is in a stable position to shore up even more growth in the booming auto sector, particularly as Volkswagen sheds market share.
As of this writing, Rebecca McClay did not hold a position in any of the aforementioned securities.
