GM says UAW strike cost nearly $3 billion but still turns third-quarter profit

The United Auto Workers' 40-day strike against General Motors had an impact on the carmaker's third-quarter earnings, but the company still generated a profit because it had plenty of inventory when the strike hit in mid-September.

Still, GM's results came in below the year-ago period, and GM said the net strike impact to the quarter in North America was a pre-tax loss of $1 billion. Analysts say the brunt of the strike will be felt in the fourth quarter and into next year.

GM lowered its full-year profit projection to account for the impact of the strike. The company said it expects the strike to dilute its full-year per-share earnings by $2. In terms of net income, that's a $2.86 billion hit for the year.

Also, GM had said it would save $4.5 billion by the end of 2020 due to various cost-savings including idling four U.S. plants, one of which was its factory straddling the border of Detroit and Hamtramck, Michigan. But as part of the new labor agreement, GM said it will invest in Detroit-Hamtramck to build an electric pickup and other electric SUVs. Therefore, GM has adjusted its year-end savings to a range of $4 billion to $4.5 billion. The other three shuttered plants, Lordstown Assembly in Ohio and Warren and Baltimore transmission plants, will not reopen.

UAW strike ends:Autoworkers ratify a new labor contract with GM, ending a 6-week national strike

Ultimately, that makes the maximum impact from the strike about a $500 million setback to GM’s target savings for the end of 2020, said GM Chief Financial Officer Dhivya Suryadevara.

"We’re going to find every cost savings we can regardless," said Suryadevara.

GM said it will be a challenge to recoup the strike losses during the remainder of the year because many of the best-selling vehicles, such as pickups and SUVs, are already being produced at full capacity.

Tuesday, a day after full production revved back up at GM's U.S. plants, the automaker reported a third-quarter pre-tax profit of $3 billion, down 5.9% from $3.2 billion a year earlier. After taxes, GM's income was $2.3 billion, down 8.7% from a year earlier. 

"Our new labor agreement maintains our competitiveness, preserves our operating flexibility and allows us to continue improving our quality and productivity," said GM CEO Mary Barra in a statement. "We remain focused on strengthening our core business and leading in the future of personal mobility."

GM's revenue was $35.5 billion, down 0.9% from the third quarter of 2018.

GM sold 863,000 vehicles in North America, up from 834,000 in the year-ago period. U.S. sales were supported by GM's new-designed 2020 Chevrolet Silverado and GMC Sierra pickups. Sales of Chevrolet cars were down dramatically.

"GM delivered what Wall Street analysts had hoped for – better-than-expected earnings - despite all of the labor turmoil," said Michelle Krebs, executive analyst for Autotrader. "They will be less thrilled, but not surprised, that GM’s guidance for the full-year has been revised downward."

Despite the strike, GM remained competitive with incentives in the quarter after dialing back last quarter. In total, GM’s incentives climbed 20% from the year-ago period to an average of $5,188 per vehicle.

Cadillac incentives were up 15% to an average of $11,162 per vehicle, the highest per vehicle-spend since at least 2014, said Kelley Blue Book.

GM’s overall average transaction price was $42,176 per vehicle, up nearly 3%, for a third-quarter record, according to Kelley Blue Book estimates.

Strike effect

GM CFO Suryadevara said it was a "solid" quarter despite the strike, led by the sales strength of GM's SUVs and pickups. GM will make up for any incremental cost increases from the new contract and lost productivity of the strike through "ongoing productivity" and cost efficiency efforts.

“We’re back up and running and we’re trying to maximize production of every unit we can and we’re running at full capacity," said Suryadevara. 

GM lost about 300,000 units in production during the strike, she said. But GM had "ample" inventory going into the strike and is now running at full capacity to make up any deficits.

“In 2019, there is some modest impact," said Suryadevara. "If the industry remains strong, we’re putting out every vehicle we can.”

Edmunds' analysts said that after two consecutive quarters of decreasing sales and market share, it's an encouraging sign that GM is finally seeing positive growth.

"Despite the strike, GM had a lot working to the company's advantage in the third quarter," said Jeremy Acevedo, Edmunds senior manager of insights. "The company is finally reaping the benefits of shedding many of the cars from its lineup and getting Silverado production fully online."

But competition in the pickup and SUV market is fierce, Acevedo said. Given these vehicles account for nearly all of GM's sales, "the company is under a lot of pressure to make sure its vehicles stand out," he said.

GM will experience most of the fallout from the six-week-long work stoppage later this year. 

Still, the new labor agreement with the UAW will cost GM $485 million in immediate cash to pay for the ratification bonuses, said Anderson Economic Group’s CEO Patrick Anderson.

The UAW ratified the new 2019 labor agreement with GM on Friday and GM's plants restarted Monday. Outside of the United States, GM had to temporarily stop building its highly profitable 2020 Chevrolet Silverado and GMC Sierra pickups in Mexico and the new 2020 Chevrolet Blazer SUV in Mexico due to a parts shortage.

GM’s production suspension in Mexico is more likely to impact fourth-quarter results, said David Whiston, equity strategist at Morningstar Research Services.

Whiston estimates GM took a $77 million a day hit to its North America profits, said Whiston.

Follow Detroit Free Press reporter Jamie L. LaReau on Twitter @jlareauan.