General Motors has suffered a loss of $800 million in operating profits since the start of the United Auto Workers (UAW) union strike, forcing the automaker to revise its full-year earnings guidance and slow down its electric vehicle strategy.
During a call with reporters on Oct. 24, GM Chief Financial Officer Paul Jacobson disclosed the financial impact of the strike, stating that the company anticipates losing approximately 0 million per week if the strike continues at its current scale.
Jacobson warned that if the union expands the strike to other GM facilities, the losses could escalate even further.
A few hours after Jacobson’s discussion on GM’s financial performance, the UAW extended the strike to include another GM production facility.
The union leadership stated that “it is clear that GM can afford a record contract.”
GM’s current offer includes a 23 percent wage increase over a four-and-a-half year contract, while the UAW is pushing for a higher percentage, closer to 35 percent.
During the same call with reporters, GM CEO Mary Barra emphasized that the company’s current contract offer is already a record and that GM will not overextend itself.
“We will not agree to a contract that isn’t responsible to our employees and our shareholders,” she asserted.
Despite the $800 million in strike-related losses, GM’s third-quarter results, announced Tuesday, exceeded expectations and performed well in the market.
EV Push ‘Moderating’
GM’s third-quarter net income decreased by 7.3 percent to $3.06 billion, while overall revenues increased by 5.4 percent to $44.1 billion.
GM’s operating profit for the third quarter was $3.56 billion, a 16.9 percent decline compared to the same period last year.
During the call, Jacobson acknowledged GM’s ”strong underlying business fundamentals,” but highlighted the uncertainty caused by the strike, leading the company to withdraw its full-year guidance for 2023.
While reaffirming GM’s commitment to increased electric vehicle (EV) production, Jacobson mentioned that the company is slowing down its electrification strategy to protect pricing, adjust to slower near-term demand growth, and implement engineering changes to enhance profitability.
Once a new contract is reached with the union, Jacobson assured that there will be an update on the financial guidance for the year, as well as a comprehensive assessment of the strike’s costs.
Barra added that GM will reduce spending on EV products and delay the launch of certain EV models to cut costs.
Electric vehicles are charging at a charging station in Monterey Park, Calif., on April 12, 2023. (Frederic J. Brown/AFP via Getty Images)
Shortly after GM released its third-quarter results, the UAW announced that an additional 5,000 union workers were joining the strike at GM’s largest and most profitable plant in Arlington, Texas.
This facility is responsible for manufacturing large SUVs like the Cadillac Escalade and the Chevrolet Suburban.
The walkout at Arlington Assembly brings the total number of UAW members on strike at Detroit’s Big Three automakers to 45,000.
Strike Expands
A day before GM’s third-quarter earnings announcement, the UAW expanded the strike to a Stellantis pickup truck facility in Michigan.
About 6,800 UAW members at the Sterling Heights Assembly Plant joined the strike, halting production of RAM 1500 trucks.
The union criticized Stellantis for lagging behind Ford and GM in addressing the demands of their UAW workforce.
“Currently, Stellantis has the worst proposal on the table regarding wage progression, temporary worker pay and conversion to full-time, cost-of-living adjustments (COLA), and more,” stated the union leadership.
Recent reports confirm that General Motors and Stellantis have offered wage increases matching Ford’s 23 percent raise over a four-year contract.
However, UAW President Rory Gamble believes the offers are insufficient, urging the automakers to improve their proposals.
“We’ve got cards left to play, and they’ve got money left to spend,” Gamble declared.
When the UAW initiated the strike in September, they demanded a wage increase of over 40 percent over four years, restoration of the defined-benefit pension plan, and a 32-hour work week with 40-hour pay.
Although the UAW has since reduced its demands to a 36 percent wage increase during the contract’s duration, the current status of negotiations remains unclear.
The three automakers expressed their desire to reach agreements that balance employee concerns with their respective visions for the future, which involve a shift to electric models that require less labor and have fewer parts.
Andrew Moran contributed to this report.
How has the strike impacted General Motors’ financial performance and earnings guidance?
Arge SUVs, including the Chevrolet Tahoe and Cadillac Escalade. The expansion of the strike to such a crucial facility further exacerbates the financial impact on General Motors.
GM’s decision to revise its full-year earnings guidance is not surprising given the magnitude of the strike’s impact. The loss of $800 million in operating profits since the start of the strike is a significant blow to the company’s bottom line. The weekly loss of approximately $200 million is unsustainable in the long term and necessitates a reassessment of GM’s financial expectations for the year.
Furthermore, GM’s electric vehicle (EV) strategy is also being affected by the strike. As part of its revised approach, the company is slowing down its electrification strategy to protect pricing, adjust to slower near-term demand growth, and implement engineering changes to enhance profitability. While the commitment to increased EV production remains, certain EV models will be delayed, and spending on EV products will be reduced to mitigate costs.
It is clear that the strike has introduced a level of uncertainty for GM and has disrupted its operations. GM’s CEO, Mary Barra, emphasized the importance of reaching a responsible contract that takes into account the interests of both employees and shareholders. The company cannot overextend itself and must prioritize sustainable and profitable growth.
Despite the strike-related losses, GM’s third-quarter results were better than expected, with overall revenues increasing by 5.4 percent to $44.1 billion. However, the impact of the strike is undeniable, as demonstrated by the 16.9 percent decline in operating profit compared to the same period last year.
Once a new contract is reached with the UAW, GM will provide an update on its financial guidance for the year and conduct a comprehensive assessment of the strike’s costs. This assessment will likely reveal the full extent of the financial impact on the company.
In conclusion, the United Auto Workers union strike has caused significant financial losses for General Motors, with $800 million in operating profits lost since the start of the strike. The company has had to revise its earnings guidance and slow down its electric vehicle strategy to mitigate the financial impact. The strike’s expansion to other facilities and the addition of 5,000 union workers further exacerbate the situation. GM remains committed to a responsible contract and will assess the strike’s costs once it is resolved. However, it is clear that the strike has introduced uncertainty and disrupted GM’s operations, necessitating a reassessment of its financial expectations for the year.
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