While Wall Street is still buzzing about the Fed's recent rate cut, General Motors ( GM) was a major player in the headlines as we round out the third quarter .
Founded in 1908, General Motors is the world's largest automaker with manufacturing operations in 32 countries, and its cars and trucks are sold in over 200 countries. Once a profitable blue chip stock , the company has fallen on hard times recently. As GM continues to lose market share to foreign competitors such as Toyota ( TM) and Honda ( HMC), the United Auto Workers (UAW) union added to the company's misery by calling the first national strike against GM since 1970. Stalled contract negotiations sent more than 73,000 factory workers to the picket line on Monday. Workers walked out at more than 80 GM facilities in the U.S. The reason for the strike? Health-care obligations of over $50 billion for retirees. GM and other U.S. automakers have long been struggling to shed crippling pension and health care benefits, which in the global economy very few workers still enjoy. The UAW, understandably, wants to keep those benefits. GM proposed passing on the liabilities to the union in exchange for giving the UAW roughly $35 billion in cash and assets . The picketing didn't last long -- only two days passed before both sides reached an agreement on a new labor contract. It seems the UAW and GM reached an accord to let the company buy out higher-paid workers who are close to retirement while also agreeing that newer, nonmanufacturing jobs would pay less than the union wage. Both sides also committed to the creation of a health care trust, to be largely funded by GM but run by the union. For now, GM appears to be on the right path as it attempts to close the substantial gap between the cost of its U.S. workforce and cheaper overseas competition like Toyota and Honda. But for many investors, evidence of a turnaround has yet to emerge and the stock may still be a speculative investment.
For a different investment idea in the automotive space, think about Penske ( PAG). It will be the sole distributor of the Smart Car, which is coming to the U.S. this January and gets 60 miles per gallon. For more information about General Motors, be sure to check out the Beyond GM issue of In the News newsletter. It examines the challenges facing companies all across America as a result of the soaring costs of health care and retirement. It also describes how many businesses have been coping by replacing traditional pensions with retirement plans in which workers assume more risk and responsibility. The issue can be found under Publications within the In the Classroom section of the Teacher Support Center. Wondering About Subprime? If you're scratching your head about how subprime mortgages are affecting the economy, take a look at this YouTube video from CEO and President of the Securities Industry and Financial Markets Association, Marc Lackritz. Also, you can check out this article from TheStreet.com.