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GM Cuts Forecast, Sees Strike’s Full-Year Cost at $2.9 Billion

Oct. 29, 2019
The strike's impact had previously been estimated at $2 billion.

General Motors Co. is preparing to pay the bill for a nearly six-week strike at its U.S. plants, eroding its free cash flow and slashing its earnings forecast for the year by $2 a share, or about $2.9 billion.

The walkout hit GM’s profit by $1 billion in the third quarter alone, the company said in a statement. The automaker lowered its 2019 adjusted earnings per share estimate to a range of $4.50 to $4.80 from an earlier projection of $6.50 to $7 a share.

The labor action started on Sept. 16 at the tail end of the quarter, chopping earnings by 52 cents a share, so most of the damage will come in the year’s final three months. By the time the year is over, GM said the impact would reach $3.8 billion to $4 billion earnings before interest and taxes. The strike left GM’s cupboard bare, as it guided down cash flow guidance to less than $1 billion.

Still, the Detroit-based company may be able to make up for some lost vehicle output as it ramps up production now that it has settled a new four-year labor deal. And third-quarter performance wasn’t as bad as some analysts predicted.

Adjusted per share profit for the quarter-- which adds back losses from the strike and other one-time charges -- were $1.72 a share, beating Wall Street’s average estimate of $1.29.

“Our underlying third-quarter performance demonstrates the ongoing resilience and earnings power of our company,” GM Chief Financial Officer Dhivya Suryadevara said in a statement.

GM’s shares rose 2.2% to $37.45 as of 8:56 a.m. in New York, paring an earlier gain of as much as 3.2% before the start of regular trading. Through Monday, shares of the automaker gained 9.5% this year but were down 5.7% since just before the strike started.

The walkout wasn’t the only thing taking a toll on the automaker. GM also repriced its stakes in Lyft Inc. and French carmaker Peugeot SA, which lowered profit by another 15 cents a share. GM owns 6.7% of Lyft and has warrants in Peugeot.

Labor Costs

For GM, the strike’s impact is two-fold. It not only hit profits for this year but also adds $100 million a year to its labor costs going forward, according to an estimate from Credit Suisse.

As part of the new labor deal, GM will give workers a 3% raise, $11,000 ratification bonuses for tenured workers and reduce the amount of time entry-level workers need to get to top pay. The deal also sets some limits on the numbers of temporary workers who can be hired.

If not for the strike, GM would have turned out a record quarter. That’s thanks in large part to its full-size trucks, which are finally getting some momentum after a yearlong roll-out. Chevrolet Silverado sales rose 18% and the GMC Sierra was up 38% in the quarter. GM said its trucks gained retail market share in all three months in the quarter.

The automaker’s Chinese operations are still struggling, though. GM’s income from its joint ventures in China fell to $282 million in the quarter from $485 million in the year-earlier period. GM acknowledged in a statement that it “underperformed” in the Chinese, where industry-wide sales fell 11% in the third quarter.

The automaker also lost $251 million on its Cruise LLC self-driving car business. The unit is still in startup mode and has no revenue. The business lost $214 million a year earlier.

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