GM strike ends after almost six weeks at cost of $2 billion

Bloomberg October 28 | Updated on October 28, 2019

A file photo of striking General Motors workers in Hamtramck, Michigan   -  REUTERS

US auto maker reaches 4-year pact with United Auto Workers

General Motors Co employees voted in favour of a new four-year labour agreement reached with the United Auto Workers, ending a nearly six week-long strike that has cost the company about $2 billion and rippled through the US economy.

The union said the deal was approved by 57.1 per cent of its members, enough to ratify the contract and stop the longest automotive walkout in 50 years. General Motors’ members have spoken, Terry Dittes, a UAW vice-president and head of its GM department, said in a statement.

The union will next target Ford Motor Co in its contract negotiations. The Dearborn, Michigan-based company will be under pressure to avoid a work stoppage while its going through a high-stakes strategic revamp of its operations. S&P Global Ratings downgraded Ford’s debt to one level above junk on Friday, saying the overhaul will be difficult to pull off.

The prolonged strike, which began on September 16, dented revenue up and down the automotive supply chain, and potentially shaved tens of thousands of workers from an October jobs report due out next week from the Labor Department.

GM and the UAW reached their agreement last week, awarding workers pay raises, $11,000 ratification bonuses and a route for temporary employees to reach full-time status. The contract also preserves the automakers’ generous healthcare plan.

Making up lost time

“GM is proud to provide good-paying jobs to tens of thousands of employees in America and to grow our substantial investment in the US,” Mary Barra, GM’s chief executive officer, said in a statement. “As one team, we can move forward and stay focused on our priorities of safety and building high-quality cars, trucks and crossovers for our customers.”

“Now, GM needs to make up for lost time. The automaker built up inventory before the strike, especially with its new full-size pickup trucks, but it will take a week to get production up to full capacity,” said Jeff Schuster, senior vice-president of forecasting for research firm LMC Automotive.

The company reports earnings on October 29 and is likely to detail the impact of the strike and address how much can be recouped. Of the $2 billion lost, it could recover $431 million of that by year’s end, Credit-Suisse analyst Dan Levy wrote in a recent research note. But GM is unlikely to hit its adjusted earnings estimate of $6.50 to $7 a share, said David Whiston, a Morningstar Inc. analyst.

Electric Hummer

The new contract is expected to raise the automaker’s labour costs by at least $100 million a year, though it allows the company to follow through with closing all but one of the four US plants it announced plans to shutter almost a year ago.

While the deal likely won’t help reduce the $13-an-hour premium that the Center for Automotive Research estimates GM pays workers over foreign automaker’s wage rates, it’s unlikely to lead to an increase in vehicle prices. Labour expenses only account for about 5 per cent of the cost of a car.

GM committed to investing $7.7 billion in US plants and create or retain 9,000 jobs as part of the deal. The automaker will save a factory that sits on the border between Detroit and the town of Hamtramck, where it will build a new line of electric trucks and sport utility vehicles. Among the models under consideration are SUVs that would revive the Hummer brand.

The automaker also plans to build a new joint-venture facility in Lordstown, Ohio, that will make battery packs for electric vehicles. That’s still a setback for workers at a now-idled assembly plant in Lordstown that once made Chevrolet Cruze compact cars. GM has no new work for that facility or two former transmission plants in Baltimore and Warren, Michigan.

Published on October 28, 2019

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