Analysts suggest that the UAW’s strike has gone on twice as long as expected. Ratings agency may cut GM’s credit as a result.
With General Motors’ investment grade credit rating in danger and analysts warning GM dealers could face product shortages during the critical Christmas selling season, talks aimed at ending the strike by 48,000 GM employees belonging to the United Auto Workers continue to drag.
Officials from both sides said the negotiations did not register any major breakthroughs and will resume today. So far, however, a resolution remains elusive in the dispute.
As the bargaining continues, the union is looking for specific investments and product allocations for the plants in represents even if GM has to move programs from Mexico where GM is now builds more vehicles than any other manufacturer in order to protect the job security.
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Throughout the years, the UAW has used various contract provisions to bolster the job security of autoworkers such as the jobs bank, specific job guarantees and plant closing bans. None of them have worked as effectively as the commitments on product allocations.
Strikers have been on picket lines much longer than analysts and other expected..
Meanwhile, the UAW strike against may force credit rating services to take action and move GM to a junk rating, according to Bloomberg Intelligence. Moody’s and Standard & Poors have indicated that GM could certainly withstand a two-week strike without much damage, but the strike is now in its fourth week and could be heading to a fifth.
J.P. Morgan estimated the strike is costing GM roughly $82 million per day, which means the company’s losses could top $2 billion by the end of the week.
GM is currently Detroit’s most profitable company, with earnings of $8 billion last year, according to the website Seeking Alpha. “This strike will not bring the company down, but in a slowing Midwestern economy, the damage is rippling beyond just the affected plants and their suppliers into the wider economy.”
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The halt in production has stalled the introduction of the new mid-engine Chevrolet Corvette that was supposed to go into production this December.
Seeking Alpha noted before the strike GM was supposed to build about 1,000 more older models and then change over to the new version, but that process will likely be delayed, and this probably means the new model will likely be delayed, deepening G
Some UAW members have expressed.surprise that they are still walking picket lines, figuring the talks would have been complete by now.
M’s strike-related costs.
The strike also could wind up cutting inventories in December, which has become one of, if not the most, important months of the year, for automakers in terms of sales, revenue and earnings, analysts said.
The fourth quarter is the highest revenue and earnings period of the year for the automaker. To put things in perspective, Q1 of this year saw revenue of $34.88 billion and earnings per share of $1.41. The street is currently looking for to see fourth quarter EPS of $1.81 on revenues of $37.77 billion from GM and the current quarter numbers have come down over time.
(Costs Mounting for GM as UAW Strike Closes Profitable Truck Plant in Mexico)
Seeking Alpha noted, “GM shares have recently dipped as the strike has dragged on. In fact, as the estimates link above shows, since July, the name has seen the number of buy or strong buy ratings from analysts drop from 15 to 9, while the number of hold ratings has gone from 6 to 13.