GM 3Q profit falls 7% as auto workers’ strike cuts production
ONLY TWO weeks of a lengthy strike against General Motors, GM, happened in the third quarter, but that was enough to dent the company’s net profit by about $1 billion.
GM reported on Tuesday that its third-quarter net income fell seven per cent as a strike by the United Auto Workers union brought its United States factories to a standstill.
The Detroit automaker still made $2.35 billion, or $1.60 per share, but said 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, and GM said it will wind up costing the company $2.86 billion in net income for the full year.
The strike forced the company to cut its full-year pre-tax profit guidance by from $6.50 to $7 per share, to $4.50 to $4.80.
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.
GM shares rose 4.4 per cent Tuesday morning to $38.27.
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 a three per cent of the cost.
FACTORY CLOSURES
But GM won significant cost savings because it was able to close three underused factories that made cars and transmissions. The company is closing factories in Lordstown, Ohio; Warren, Michigan; and near Baltimore.
Because of the strike, which began September 16, 300,000 GM vehicles never made it off the factory floor, Chief Financial Officer Dhivya Suryadevara told reporters on Tuesday. The company will try to make up some of the lost production, but it won’t be able to in trucks and full-size SUVs because factories were already running at full capacity before the strike to meet demand, she said.
Before the strike, GM had said its restructuring efforts this year, including four plant closures, would save it $4.5 billion on an annual basis. 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, Suryadevara said.
“Our plan is to offset the incremental costs (of the contract) with ongoing productivity and efficiency efforts,” she said.
PRE-TAX PROFIT
GM said despite the strike, its pre-tax profits in North America rose by $200 million to $3 billion for the quarter. But the company lost $100 million on its international operations, compared with a $100-million profit a year ago. That includes $300 million in income from its joint venture in China, which dropped by $200 million. GM spent $300 million on its Cruise automated vehicle unit in the quarter, and it made $700 million before taxes from its financial arm.
“The underlying business was strong this quarter,” Suryadevara said, adding that GM still was able to make a pre-tax profit in North America due to the strength of its pickup truck and SUV sales.
GM’s net profit declined even though sales jumped 6.3 per cent in the US, 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,” Jeremy Acevedo, senior manager of insights, said in a statement. The company, he said, is showing benefits of shedding slow-selling cars from its line-up, and production of new full-size pickup trucks are getting up to speed. GM has been switching factories over to the new truck through the year, a process that was halted by the strike.
Light trucks, including SUVs, accounted for just over 88 per cent of GM’s sales during the third quarter. Pickup truck sales rose 14 per cent in the quarter, the first quarterly increase of the year.