Detroit (AP) -- Shares of U.S. automakers soared Wednesday as investors took comfort in GM's announcement that it was slashing its work force and production and suspending its dividend in an effort to stay afloat in an increasingly difficult market.
Shares of GM surged $1.56, or 15.9 percent, to $11.40 in afternoon trading. Ford shares gained 76 cents, or 16.3 percent, to $5.41.
``GM is a name where there has been a lot of potential buyers sitting on the sidelines,'' Calyon Securities analyst Mark Warnsman said in an interview. ``It's a tough stock to get in front of, and perhaps yesterday's announcement gave folks hope that perhaps we've hit bottom.''
GM announced it was cutting white-collar job costs in the U.S. and Canada by more than 20 percent, shedding thousands more factory jobs by cutting truck production even further, and suspending its $1 per share annual dividend for the first time in 86 years.
The moves come during a desperate time for GM as it struggles with a weak economy, record-high gas prices and an unprecedented shift in demand away from its traditionally popular trucks and sport utility vehicles.
GM shares have lost nearly two-thirds of their value since the start of the year and have declined more than 75 percent from a 52-week high of $43.20 in October. GM said it hopes the latest cuts save $15 billion through 2009. It said if its latest predictions hold true, it should have enough cash to sustain itself at least through 2010.
Immediately after Tuesday's news, GM shares plunged to $8.81, their lowest level since June 23, 1954, according to the Center for Research in Security Prices at the University of Chicago. The price is adjusted for splits and other changes. But the shares rebounded later in the day and closed at $9.84, up nearly 5 percent.
GM's shares continued that rally Wednesday, driven by momentum from Tuesday's announcements and strong gains across the broader market.``It's two days of about the same (gain) ... in relation to the market,'' Warnsman said. Although GM shares rose Tuesday, he said, they were tempered by losses in the broader market. On Wednesday, however, stocks were generally higher, with the Dow Jones industrials and the Standard & Poor's 500 index up about 2 percent.
In a note to investors Wednesday, Deutsche Bank's Rod Lache said GM's latest plan buys the automaker time, but more aggressive action is needed.
``It is not clear that these will be sufficient to restore profitability or positive cash flow,'' Lache said. Shares of auto parts suppliers also rose Wednesday. American Axle & Manufacturing Holdings Inc., whose largest customer is GM, added 67 cents, or 11.6 percent, to $6.47. Lear Corp. jumped $1.17, or 8.4 percent, to $15.07. Borg Warner Inc. advanced $2.37, or 6.4 percent, to $39.54.
Warnsman attributed those advances to GM's announcement as well.
``Confidence is important, both with your potential customers and with your suppliers - who, after all, want to get paid for what they're shipping into your plant,'' he said.
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