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GM strike to cost more than $3B - BofA

Oct. 27, 2019 4:36 PM ETF, GM, STLABy: Douglas W. House, SA News Editor45 Comments
  • Bank of America believes the just-resolved 40-day strike at General Motors will trim more than $3B off its bottom line, principally in Q4.
  • 57% of workers gave the thumbs up on the four-year contract which includes better wages, signing bonuses and a commitment from the company to invest $7.7B in its U.S. manufacturing operations, protecting 9,000 jobs. The new agreement will add $100M or more to GM's annual labor costs.
  • Production at more than 30 U.S. plants will ramp up as soon as possible says a company spokesperson, adding that it will schedule overtime to make up for the down time, giving workers a way to recoup lost income. The production of ~300K cars has to be made up.
  • According to labor experts, workers' gains at GM will be a hard sells at rivals Ford and Fiat Chrysler since they are weaker financially and have different workforce needs. Ford, for example, is dealing with a fast-rising healthcare tab, expected to top $1B next year. Fiat Chrysler will likely have more trouble absorbing increases in temporary worker and new hire pay.

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Comments (45)

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hiroller8 profile picture
As a business owner in North Dakota, I pay my guys a high wage. They are appreciated and taken care of. However, if they ever held a "gun" to my head and "demanded" anything, they would be immediately terminated. I am sorry, but the employees do not tell this owner what I am going to do. If they are unhappy with their job or the company in general, they have options. Go find another job that makes you happy, or go start your own business. That way, "you" get to make the decisions on pay and benefits.
Risk Advisor profile picture
Three billion off the bottom line? Once again all of the Japanese manufacturers with plants in the USA are laughing hard. The big three and their bellicose unions simply do not exist at Honda, Toyota, and Nissan. The Japanese pay less and no is ever laid off. Everyone is in it together. Compare that with the USA traditional manufacturers. Continuous Improvement is a way of life. Every employee is required to submit ideas for improvement on a monthly basis, not to engage in a war between white collar and blue collar. Sad to see it happen.
Michael Bryant profile picture
Psychology-wise, the Japanese culture is called a collective culture. The American culture is called an individualistic culture.
Tdot profile picture
The union renders the American "individualistic culture" moot. It is very much a culture of collectivism within the Union, in pitting the hive collective of "workers" against "management" as necessary to achieve group goals.
Forget strikes, exec comp, etc. If you want to make some good money long term, stay away from the big car makers. I did a quick look at some summary statistics, at a few car companies, the highest profit margin i could find was 6% (it was GM). The closest thing I can think of to a sustainable competitive advantage for the big carmakers is Ford's F series brand being the number one selling truck for ~45 years running.

Maybe there is a supplier some place in the supply chain that can hold its own but the biggies have so much bargaining power yet they are always getting squeezed too (fragmented industry, gov't raising required high fuel efficiency standards, fighting with unions, etc)

Look elsewhere for big $
amegalo profile picture
You can’t gain by hurting the company that employees..fools listen to idiots.
arkdetriumph profile picture
i think the exact opposite is true as $gm becomes an "anchor tenant" for the Industrial mid-West yet again. good luck selling those Teslas in the Middle East, North Africa or Siberia. Best car ever built ever...but for select markets only still. This isn't true of $gm, $f ford and in theory anyways $fcau fiat/chrysler. "car demand" is only limited by available stroage space as well. one person owning 3-5 vehicles in the USA is hardly uncommon. I owned 3 pickup trucks at one time just for personal use and owned outright. $x us steel has just raised prices importantly as well saying to me demand for these products is only understated by a lack of buyers and not a lack of demand. product quality has been amazing now going on many years...with material improvements to that still en route.

long $hog Harley Davidson
strong buy
UAW preying on idiots...Hoffa , Hoffa, Hoffa, lol
coaster kid 13 profile picture
I believe Hoffa was a Teamster.
How much did GM cost the UAW members, had they offered a contract that left some self respect for the rank and file they would not have had to go on strike. Were they supposed to just act like gracious working poor happy to have whatever the GM management gave them. Shouldn’t have to act like wanting a fair shake is asking for charity.
"poor people"? lol $60/hr for poor people who did not take high school seriously ??? give me a break.
Where did you get $60 and hour? They don't even make half that! The hourly rate for a legacy worker is $28 and change. Majority of the benefits that are reported in the $60-$80 range are benefits that are not used by the rank and file. It's very hard to utilize the $6500 a year tuition assistance when you're working mandatory 58-84 hours a week and raising a family. Don't believe everything that's reported in the news. I am a 30+ year legacy employee, and, I make a decent salary, however, I have to work mandatory Saturday and Sunday EVERY OTHER WEEKEND...because that's what the company wanted since the car economy was good and they didn't want plants idle when they could be building vehicles. That's starting to change, so, now they want us to go back to a "more traditional" schedule. We live at the mercy of the company. I've had coworkers that have had to relocate several times because the company plays silly games and uses their workers as a bargaining chip. There is a better way to do business.
It's obvious you have no clue on the value of the benefits package the workers have! I do doubt it puts it to $80/HR but it would be close to $60/HR.
Shark39 profile picture
I have no idea where these analysts come up with these numbers. GM sold vehicles all the while workers were striking. They didn't pay workers and are closing 3 of the 4 plants. Wall Street and our media hate GM. Thanks to Obama its still Government Motors. Myself I'm Long GM.
Shark you are correct. Last qtr and this qtr will take a hit with back to work bonuses and dollars not going into inventory will hit the bottom line but this inventory would have to be moved at lower margins so hopefully GM will sell these same customers higher margin 2020 models and GM will be fine.
Tdot profile picture
Just to clarify how things work, GM and Ford and others report their wholesale shipments to their dealerships and fleet customers as "sales", and the revenues and earnings are booked based on those sales at dealership pricing.

Retail dealerships selling off their inventory to retail consumers do not "count" as GM sales. It is when the dealerships place their orders, and GM ships the product, that the accounting happens.

So for instance, if a retail dealership's inventory is destroyed by an asteroid and none of the vehicles in that inventory can be sold to retail customers, then that does not count against GM's "sales": they already booked those vehicles as "sold" on shipment to the dealership.

In the case of the strike, once the new vehicle wholesale shipments from GM's factories to the retail dealerships and fleet customers ceased, the prospective revenues for those shipments also ceased.

The $3 billion "hit" is most likely in the form of the costs to swiftly but safely idle down dozens of factories for some 6 weeks, have them sitting there burning electrons on standby, paying the overhead costs with nothing being produced, and paying suppliers for things that were already shipped and en-route, daily maintenance on tools and things that cannot necessarily sit still for long periods of idle time, and then to slowly get them all started back in an orderly fashion. And then there is all the "we're gonna need you to go ahead and come in on Saturday and Sunday too" overtime pay to "sort of play catch up". All being additional costs added to the normal costs to build the "lost" vehicles on top of the regular vehicles, keeping the factories running on the holidays (extra overtime) in order to restock the dealerships for the huge December sales. December is usually the biggest and most profitable month for auto sales.

Anyway, it is a $3 billion (pre-tax) hit out of something like $150 billion in revenues and around $25 billion in gross margin before interest and overhead and such. And it is tax deductible, so the taxpayers will be billed about a billion or so for the pleasure.
Michael Bryant profile picture
$HON is known to be the best in handling and maintenance. I think I’ll stick with an Accord or CRV.
But did GM close 4 plants and send more jobs to Mexico;or was that F? Getting confused here...
Ford is closing plants in Europe, Canada and other countries. In the US, they only fired salaried managerial staff this year. They are increasing investments in US plants for the switch to all electric models, that switch, however, in the long run, allow for a reduced number of workers at those plants as electric cars will take less time to build.
coaster kid 13 profile picture
Ford, if I remember correctly, is eliminating a number of their sedan production in favor of trucks, SUVs, and vans. I think Ford only plans on keeping the Mustang, Fusion, and possibly the Focus.
The Focus Active was going to be imported, but last reports put it at cancelled due to the tariff wars that are currently ongoing. The last reports of the fusion that I can find put it at 2020 or 2021 being the last model year. The Mustang will be the only sedan, supposedly. I think, though, that it's a smart move in the time being as they transition to electric to just cancel all the sedans. Trucks and SUVs are great targets for mixed fuel sources as there are many use cases where electric will no be a good fit and may never be. We will likely not see the death of the gasoline truck/suv until we get the 500 mi battery or fuel cells. The Mustang, being a muscle car, will always have a gasoline engine following, imo, even when everything else goes electric. So long as someone is pumping crude oil or making synthetic gasoline, we will have muscle gasoline cars. Thus a hybrid and/or dual motor setup, like the energi line, for the mustang will also be a good mix.

The Mustang inspired all electric suv should be a market win if they don't make huge missteps.
flyerguy1300 profile picture
Take care of the employees and the employees will take care of you. Need to pay the low people better instead of the high ups getting paid boat loads.
The strikers may won the battle, but lost the war.
Foreign brands flood the US market, they are better in styles and cheaper too. US auto makers lose their edge decade ago,
I wish I got a huge signing bonus while getting to keep my job; win-win for sure!
The signing bonus is diluted considerably from the labor standpoint as each worker lost 40 days of work...and their $275 / week strike pay didn’t come close to their standard wage.
They would have gotten it even without a strike so it being "diluted" doesn't matter.
georgefelix75 profile picture
$3B lost over $100M/Yr concession or 30 yrs worth....sounds like the union is the only one that made money.
I say that a bunch of b/s, so if they work them 40 days they would have made three more billion?
Exactly. They’re sell just about the same number of cars and trucks either way. They did not lose $3B in sales that will never be recouped. Those sales were just delayed and inventory depleted, which is a good thing. Just accounting nonsense.
kingRIG2.0 profile picture
Fuzzy Math to steal next years profit sharing payments to workers so in reality the workers will pay for GM to trim it’s excess inventory
By BofA?
Teutonic Knight profile picture
The end result of this stupid and meaningless strike is

GM cars will become even more uncompetitive

I for one will never buy one, even like Boris said, even die in a ditch
littlecubbie2019 profile picture
The result is also gm is still closing some plants. The union is really doing a good job helping workers still keep their jobs. For me, I’d rather have a job than a raise.
Don't buy one, who cares ? That just means better deals on great cars for the rest of us .
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