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G.M. Puts Strike Impact on 2019 Earnings at Almost $3 Billion Strike Will Cost G.M. Nearly $3 Billion in 2019 Earnings, Company Says
(about 5 hours later)
With a lengthy strike finally behind it, General Motors offered its first look Tuesday at some of the financial fallout. General Motors has offered its first accounting of the financial toll from a six-week strike. And its preview of the months ahead reflected why it was willing to endure the walkout.
For the full year, G.M. said the strike’s impact on earnings was likely to be almost $3 billion. The four-year union contract approved last week to end the strike allowed the company to close three plants already idled in the United States. Its third-quarter earnings report, released Tuesday, showed the importance of that provision: G.M., like other automakers, faces worsening economic conditions, especially in the United States and China, the two largest auto markets.
G.M. reported that its third-quarter net income was $2.3 billion, down 9 percent from $2.5 billion in the same period in 2018. The company said the 40-day strike cost $1 billion in the quarter, reducing earnings by 52 cents a share. A bigger blow is coming in the fourth quarter, which lost a full month of production. For the year, G.M. said the strike’s impact on earnings was likely to be about $3 billion.
The company earned $1.72 per share in the quarter on an adjusted basis, which ended Sept. 30, compared with $1.87 per share in the same quarter last year. It said the strike had cost $1 billion in the quarter, reducing earnings by 52 cents a share.
Revenue declined to $35.5 billion from $35.8 billion.
The strike’s effect on earnings will be greater in the fourth quarter because it shut down G.M.’s North American operations for almost all of October.
The company’s 49,000 union employees walked off the job on Sept. 16, idling 34 plants across the Midwest and South for the final two weeks of the third quarter. Most of G.M.’s plants in Mexico and Canada were also affected.
The strike was settled last week when the contract was ratified by a majority of the United Automobile Workers union members employed by G.M. Workers began returning to work over the weekend.
“Our new labor agreement maintains our competitiveness, preserves our operating flexibility and allows us to continue improving our quality and productivity,” G.M.’s chief executive, Mary T. Barra, said in a statement Tuesday. “We remain focused on strengthening our core business and leading in the future of personal mobility.”
G.M. shares were up about 5 percent in morning trading.
[How it looked in Flint: The G.M. strike from the picket lines.][How it looked in Flint: The G.M. strike from the picket lines.]
G.M.’s contract with the union provides for pay increases over the next four years, including substantial jumps for about a third of its hourly workers who currently earn considerably less than the top wage of $31. After four years, most hourly workers will earn the new top wage of $32. “The lost profits from the work stoppage were significant,” G.M.’s chief executive, Mary T. Barra, said in a conference call. She said G.M. would be able to make up only a small part of its lost production over the rest of the year because many plants were already operating at full capacity and could not accommodate extra overtime or weekend work.
Analysts estimate that the contract will increase G.M.’s labor costs by about $100 million a year. The new contract with the United Auto Workers union allows the company to close a small-car plant in Lordstown, Ohio, and transmission factories in Baltimore, Md., and Warren, Mich. The reduction in manufacturing capacity will leave G.M. in a more stable position if sales continue to slow or the United States economy slips into a recession.
The contract allows G.M. to close three United States factories, including a small-car plant in Lordstown, Ohio. The reduction in manufacturing capacity will leave G.M. in a more stable position if auto sales continue to slow or the United States economy slips into a recession. The third-quarter report outlined some of the reasons for caution. So far this year, the company’s vehicle sales have fallen slightly and total industry sales are likely to decline in 2020, said G.M.’s chief financial officer, Dhivya Suryadevara.
Helped by strong sales of high-margin trucks and sport utility vehicles, G.M. has earned $35 million in North America over the last three years. Under the new labor agreement, the company has promised to invest $7.7 billion over the next four years in United States plants. An additional $1.3 billion will be invested by G.M. and joint-venture partners. The spending is supposed to create or preserve as many as 9,000 jobs. In China, G.M.’s sales fell 11 percent in the third quarter, which caused a decline in income from joint ventures there. Over all, G.M.’s international operations booked a loss of $65 million in the third quarter.
In first three quarters of 2019, G.M. sold 2.15 million cars and light trucks in the United States, a decline of about 1 percent from the comparable period last year. Ms. Suryadevara said the company expected “continued volatility” in China and South America next year.
G.M. also has to control costs because it is spending heavily to develop electric and self-driving cars. In the conference call, Ms. Barra said the automaker was likely to spend more on electric vehicles over the next five years than on gasoline-powered vehicles. The company’s autonomous-vehicle division, Cruise, lost $300 million in the third quarter.
[G.M. on Monday sided with the Trump administration in its clash with California over pollution standards.][G.M. on Monday sided with the Trump administration in its clash with California over pollution standards.]
In exchange for an agreement to close plants, the new labor contract gives G.M.’s 49,000 U.A.W. workers pay increases over the next four years, including substantial jumps for about a third of its hourly workers who currently earn considerably less than the top wage of $31. After four years, most hourly workers will earn the new top wage of $32.
Analysts estimate that the contract will increase G.M.’s labor costs by about $100 million a year. Ms. Barra said G.M. aimed to cut costs to increase productivity to ease the impact of the higher labor costs. “I have asked the G.M. team to find every offset,” she said.
G.M. shares gained more than 4 percent in Tuesday’s trading.
The U.A.W. now has to reach deals with Ford Motor and Fiat Chrysler, and it will seek to win similar terms, an approach known as pattern bargaining. It is unclear whether those automakers will agree to the same terms or what they would seek in return, since neither has domestic plants designated for closure.
G.M. reported third-quarter net income of $2.3 billion, down 9 percent from $2.5 billion in the same period in 2018. The decline reflected the impact of the strike, which halted production in the final two weeks of the quarter, as well as a loss by overseas operations and higher warranty costs.
On an adjusted basis, the company earned $1.72 per share in the quarter, which ended Sept. 30, compared with $1.87 per share in the same quarter last year. Revenue declined to $35.5 billion from $35.8 billion.
The company’s union employees walked off the job on Sept. 16, idling 34 plants across the Midwest and South. Most of G.M.’s plants in Mexico and Canada were affected as well. Workers began returning to their jobs over the weekend.
“Our new labor agreement maintains our competitiveness, preserves our operating flexibility and allows us to continue improving our quality and productivity,” Ms. Barra said. “We remain focused on strengthening our core business and leading in the future of personal mobility.”
Helped by strong sales of high-margin trucks and sport utility vehicles, G.M. has earned $35 billion in North America over the last three years. Under the new labor agreement, the company has promised to invest $7.7 billion over the next four years in United States plants. An additional $1.3 billion will be invested by G.M. and joint-venture partners. The spending is supposed to create or preserve as many as 9,000 jobs.
In first three quarters of 2019, G.M. sold 2.15 million cars and light trucks in the United States, a decline of about 1 percent from the comparable period last year.