GM takes billion-dollar hit with strike this quarter, with more losses expected
GM expects the strike will wind up costing nearly $3B in net income overall, including next quarter
Only two weeks of a lengthy strike against General Motors happened in the third quarter, but that was enough to dent the company's net profit by about $1 billion US, the automaker reported on Tuesday.
The company's third-quarter net profit fell seven per cent as a strike by the United Auto Workers union brought its U.S. factories to a standstill.
The Detroit automaker made $2.35 billion, or $1.60 per share, but the strike cost it 52 cents per share of earnings.
Most of the impact from the 40-day strike will hit in the fourth quarter. GM said the strike will wind up costing it $2.86 billion in net income for the year.
That has forced the company to cut its full-year pretax profit guidance from $6.50 to $7 per share, to $4.50 to $4.80.
Because of the strike, which began Sept. 16, 300,000 GM vehicles never made it off the factory floor, chief financial officer Dhivya Suryadevara told reporters Tuesday.
The company will try to make up some of the lost production, but won't be able to recapture any of the lost production of trucks and full-size SUVs because factories already were running at full capacity before the strike to meet demand, she said.
Excluding one-time restructuring costs, the company made $1.72 per share, beating Wall Street estimates of $1.38, according to data provider FactSet.
Revenue fell 0.9 per cent to $35.47 billion, but still surpassed analyst estimates of $34.95 billion.
Revised plan on plant closures
The 49,000 workers, who ended their strike on Friday, were able to win a mix of pay raises and lump sums. They also got an $11,000-per-worker signing bonus, faster pay raises for newly hired employees and a path to full-time work for temporary workers. They kept their current top-notch health insurance with workers picking up only three per cent of the cost.
But GM won significant cost savings because it was able to close three underused factories in the U.S. that made cars and transmissions.
The automaker was looking to close four plants, saying it would save $4.5 billion on an annual basis in the process. But in bargaining, GM agreed to keep a factory in Detroit open to build electric trucks. So the company revised its savings number to a range of $4 billion to $4.5 billion.
"Our plan is to offset the incremental costs [of the contract] with ongoing productivity and efficiency efforts," Suryadevara said.
The strike forced a shutdown of GM's Oshawa, Ont., plant, with several hundred other jobs disrupted at its St. Catharines, Ont., location. Its Ingersoll, Ont., assembly plant was less affected, due to pre-strike planning.
In a statement last week, a GM Canada spokesperson said all of its Canadian manufacturing operations were set to be back running this week.
Envisioning an 'all-electric' future
GM's profit declined even though sales jumped 6.3 per cent in the U.S., the company's most profitable market. The average sales price rose 2.8 per cent to $41,661 per vehicle compared with a year ago, according to the Edmunds.com auto pricing site. Edmunds provides content to The Associated Press.
"Despite the strike, GM had a lot working to the company's advantage in the third quarter," said Jeremy Acevedo, senior manager of insights, said in a statement.
The company, he said, is showing benefits of shedding slow-selling cars from its lineup, and production of new full-size pickup trucks are getting up to speed.
Light trucks accounted for just over 88 per cent of GM's sales during the third quarter, and truck sales rose during the quarter for the first time. GM has been switching factories over to the new truck through the year, a process that was halted by the strike.
On a conference call with industry analysts, CEO Mary Barra said Tuesday that during the next five years, GM expects to spend more of its capital dollars on vehicles powered by electricity than those run by internal combustion engines.
She said the UAW contract doesn't place any limits on electric vehicles that can be built. Union officials are worried that it will take fewer workers to build electric cars, but Barra said that change is years into the future.
GM plans to develop 20 electric models that it plans to sell worldwide by 2023, a step toward building an "all-electric future" for the company.
Fully electric vehicles make up about 1.5 per cent of U.S. new vehicle sales, and the LMC Automotive consulting firm predicts it will rise to only 7.5 per cent by 2030.
With files from CBC News