GM Strike Will be Brief, or Consequences Dire Say Analysts

Sept. 25, 2007
Could cause long-term damage to company, workers and suppliers

A nationwide strike at General Motors will likely end in a matter of days or a few weeks as a lengthy strike could potentially bankrupt the company, analysts said. "Any protracted strike would basically do in GM and it's not in the union's best interest to do that," Dana Johnson, chief economist at Comerica Bank said.

Some 73,000 workers at General Motors plants across the U.S. went on strike on Sept. 24 after contract talks broke down over issues of job security and health care. The strike forced the closure of at least one plant in Canada and could also impact plants in Mexico which supply parts to U.S. facilities.

But it is unlikely to have significant repercussions on the nation's economy because GM "is not the huge presence it once was" Johnson said. "In the context of a short-term strike it could be greeted as a positive and necessary step to delivering a really serious contract that addresses the issues," said Standard and Poor's credit analyst Gregg Lemos-Stein.

A short-term strike could also help GM speed up its restructuring plan by drawing down its bulky inventory and cutting labor costs, he said. "There is a possibility that there could be a complete breakdown which would be catastrophic and would cause severe long-term damage to the company, its workers and its suppliers," Lemos-Stein said. He added that he expects a settlement shortly because "they are close on so many issues."

GM has sufficient inventory of vehicles to meet short-term demand in its critical U.S. market and significant cash reserves to cover the costs of a brief strike. But the strike will cost GM about $880 million a week, estimated Deutsche Bank analyst Rod Lache, who said that long-term effects on GM's finances and market share could also be significant. "GM has never completely recovered market share it lost during prior strikes," he said. "The UAW understands that a strike against GM is a lose/lose proposition and we would expect the strike to have limited duration."

The longer-term outlook for GM remains positive, Lache said, because it looks as though the automaker would be able to relieve itself of $14 billion in retiree health care obligations by transferring the administration of the benefits to the union. While GM would take a huge hit to fund the program, the deal would then improve free cash flow by $2.7 to $2.8 billion a year and bring hourly labor costs in line with U.S. plants run by Japanese competitors, he estimated.

Union president Ron Gettelfinger said the health care deal, while still unresolved, was not the main trigger for the walkout. The problem was that GM wasn't willing to match the union's flexibility on health care with commitments to build vehicles in the U.S. in the future, he said. "I don't think we need to get any clearer. It's about job security. It's about investment in new products and it's about economic issues that affect our membership," Gettelfinger said.

This is the first strike at GM since 1998 -- when one lasting 53 days cost the automaker some two billion dollars -- and the first nationwide strike at GM since 1970.

Copyright Agence France-Presse, 2007

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