Morgan Stanley removes GM as its top pick of auto stocks in the United States

Article by Christian Andrei, on January 19, 2012

Morgan Stanley doubts that General Motors Co. has the "political will" to overhaul its European operations and has removed General Motors Co. as its top pick of U.S. auto stocks. In a research note, Morgan Stanley analyst Adam Jonas said that GM shares will probably "tread water" until its first-quarter results are announced and it offers more information about its restructuring efforts in Europe.

Jonas wrote that while GM is seen to feel the urgency to make additional reductions to excessive capacity in Europe, it doubts if GM has the “political will” to make major change possible.

What lies at the heart of GM's restructuring strategy for Europe is “fixing its Opel brand.” Investors have been worried about Opel’s “sustained losses.”

Job cuts and plant closures are prevented by GM's contract with its German union IG Metall. However, GM has to decrease costs at Opel while the European debt crisis hampers demand. Sources said last week that GM may move more auto production to Europe from Korea.

This shift will give GM more flexibility to reduce Opel costs. However, Jonas said that this move will seem too "incremental, disruptive and insufficient" to be useful. He wrote that this arrangement would be viewed as “skirting the issue of excess capacity in the region and a climb-down from what we had believed GM was prepared to do to achieve sustainable profitability for GM Europe.”

The brokerage had retained its "overweight" rating on GM shares and a $45 price target. GM shares have increased by over 20% so far in 2012. This is higher than other major auto stock in the world.

Topics: gm, united states

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