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Union salaries could drive GM into the ditch

Dear Mr. Berko: I bought 150 shares of GM on the offering at $33, and it’s now $39.

You made a big mistake criticizing this great company just before it became public, because it will soon become one of the greatest and biggest companies in America again.

Do you have the guts to admit that you are wrong? In fact, I plan to buy a new Buick this spring, and a friend will trade in his car for a new GMC.

GM has paid back all the money it owes the government, and my broker told me that the company will earn more than $4 a share this year. GM management, GM employees, the United Auto Workers Union and GM’s suppliers are stronger than ever and working together to make the best product in the world.

You were wrong, Mr. Berko, and I think you owe your readers an apology for bashing a great company. Would you buy the stock now? –S.T. in Troy, Mich.

Dear S.T.: I suggested to readers that they might sell their GM if it moved to a premium after the November IPO, and the wallahs on the Street suggest that it could run up to $41 to $43.

And you’re right: I was wrong. I didn’t think GM would trade at that price. But don’t make the mistake of ascribing long-term results to short-term consequences.

The United Auto Workers still has a stranglehold on management, and the average $60-per-hour wage earned by union employees does not augur well for GM’s long-term stability. Frankly, I don’t give a freckle how GM cuts the mustard, slices the salami or stuffs the sausage. When GM pays unskilled union employees $60 an hour, that’s a prelude to corporate suicide.

Wages of $60 an hour compute to $2,400 a week, or $125,000 a year. As Yogi would say, “It’s deja vu all over again.” And GM is the company that declared bankruptcy, borrowed $50 billion from the government and promised its shareholders it would toe the line on costs. Well, holy guacamole and tiramisu, too. A $125,000 yearly paycheck for union employees sticks in my craw considering that the average U.S. household earned $49,000 in 2010.

Meanwhile, GM still owes billions to the treasury, which still owns 26 percent of GM. The company must sell its remaining stock at $53 a share just to break even. Frankly, I think a $53 stock price is a long way from San Jose.

Hopefully, the automobile industry is in the stage of a solid uptrend. But unless GM’s management can get the UAW to tone down its wage demand, that uptrend won’t become a reality.

The collective bargaining agreement between GM and the UAW expires this September. And while the union has agreed not to strike until September of 2015 — which means it will strike in four years — the UAW is aggressively seeking to get back what it gave up during bankruptcy. And while the union has agreed not to strike, that doesn’t preclude worker walkouts, slow downs or stoppages to force concessions from management.

Union work rules, wage demands and retirement benefits and lousy corporate management helped bring GM to its knees. Management and unions have an adversarial relationship, and I don’t see much change in the future.

I want GM to succeed, and I think it can, but not with the quick success some think it will. The global auto market is very uncertain. The U.S. market is becoming crowded, as Volkswagen and Hyundai usurp customers from GM, and a weak, slow economic recovery plus high unemployment rates will dampen a GM recovery.

Still, I’d not buy the stock.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com.

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