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GM May Reverse Course: Get Smaller but Profitable

April 23, 2006|Tom Petruno | Times Staff Writer

Investors' opinion of General Motors Corp. is so low, the company's stock market value -- now $12.3 billion -- is less than 6% of Toyota Motor Corp.'s market value of $212 billion.

But what if the prevailing view is wrong, and GM succeeds in turning itself around without resorting to bankruptcy?

Wall Street remembers the payoff from taking a gamble on Chrysler Corp. in the early 1980s, when many investors doubted that even federal loan guarantees could save the company. Chrysler shares, which sold for less than $1 in 1981, soared more than twentyfold by 1987 as the company returned to profitability.

GM Vice Chairman Robert Lutz told reporters at the New York International Auto Show this month that "GM will come back and blossom like never before."

Some analysts agree that, if enough things go right for GM, it could restore itself as a viable auto company -- although it would be far less dominant than it once was.

"GM is going to be a smaller company but they're going to be very profitable" if management's recovery plan works, said Sean McAlinden, an economist at the Center for Automotive Research in Ann Arbor, Mich.

GM's strategy focuses on slashing labor and health-care costs and revitalizing sales.

Still, given intensifying global competition, still-rising gasoline prices and the possibility that GM's union workers will balk at more givebacks in wages and benefits, most Wall Street analysts aren't recommending GM stock.

Of 19 analysts tracked by Bloomberg News, just two advise buying the shares, while 10 advise selling; the rest are neutral.

And although GM's stock has plunged to $21.79 from a record high of nearly $95 in 2000, it isn't the penny stock that Chrysler was in the early 1980s.

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