Strike action the latest challenge for GM as it seeks reinvention

UAW-led industrial action at GM’s North American factories come as the automaker implements a global strategic overhaul. By Martin Kahl

Industrial action by United Auto Workers (UAW) members that has idled production across GM’s US manufacturing network has spilled over into a fourth week, reportedly costing the automaker in excess of 165,000 units in production, as well as affecting production in Mexico and Canada, and at its suppliers.

While the UAW leadership faces a major corruption scandal that has seen FBI raids on the homes of current and former high-ranking UAW officials, its members are striking to pressure GM as it negotiates over job guarantees and the use of temporary workers, as well as a number of other issues including reshoring production, wages and healthcare, with apparently little progress on any.

Strikes resulting from GM’s fractious negotiations with the UAW over the terms of a new four-year labour contract come during the midst of a strategic overhaul at the automaker that includes shifting production to four ‘vehicle sets’, making tough decisions in weaker markets, investing in China and NAFTA operations, and developing a multi-million unit Global Emerging Markets architecture.

While the UAW leadership faces a major corruption scandal that has seen FBI raids on the homes of current and former high-ranking UAW officials, its members are striking to pressure GM

The North American factories may not currently be building GM vehicles, but the dealers are still selling them, and in terms of US sales, the automaker could—at this stage—be largely unaffected by the strike. The dealer network is understood to be equipped with greater-than-required inventories of profitable pick-up trucks in particular, and group brands are enjoying a strong market performance in the US. GM recently reported US third-quarter deliveries of 738,638 units, up over 6% in a market which grew by just 1%; by contrast, Ford suffered a near-5% decline in the same period, and FCA reported effectively flat sales.

A new Automotive World report, ‘Strategy update: General Motors’ discusses the automaker’s model plans and production outlook over the five years to 2023, and the company’s plans globally as it enters an already difficult period in its domestic market.

Under Mary Barra, the company has made a number of often difficult strategic decisions, not least of which were the withdrawal from mainstream sales in Europe, the divestment of Opel/Vauxhall and the end of Chevrolet sales in India. “We have commented for several years upon GM’s new-found readiness to confront the areas of chronic weakness in its operations and make the tough decisions to improve or excise them,” said report author, Jonathan Storey.

“The latest manifestation of this characteristic is the major strike, the first such action for 12 years, that is currently disrupting the North American operations, with nearly all assembly plants idled,” Storey noted. “GM has brought on the confrontation as it seeks to reduce its labour costs of US$63/hour, which are the highest of the Big-3 and higher than those of Asian and European transplants. While the strike is of course unwelcome, GM has timed its battle well, with significant cash reserves and new-car inventory to support its sales. However, GM will have to weigh carefully and continuously the costs of the strike compared with the expected cost savings of cheaper labour.”

A strategic overhaul includes shifting production to four ‘vehicle sets’, making tough decisions in weaker markets, investing in China and NAFTA, and developing a multi-million unit Global Emerging Markets architecture

The Automotive World report sees GM’s global light vehicle output falling by just over 10% in 2019. This decline is attributed to falling demand in most of its major markets, and had been anticipated ahead of the current industrial action.

As to whether the strike will have a significant longer-term effect on the automaker’s production in the NAFTA region, Storey said, “For the time being, we have assumed that the strike will not have a major impact on GM’s North American output in 2019, expecting the dispute to be resolved reasonably quickly and for some lost output to be recovered. Nonetheless, the company’s global output is expected to decline in 2019, mainly reflecting the slowdown in China.” Reuters reports that AEG has estimated the cost of the strike, at the end of the third week, at US$660m in profits for GM, and direct wage losses of over US$412m for all employees. Restarting factory production will take time, with supply chains disrupted and a growing backlog of orders to fulfil; and reports suggest that the Corvette C8 launch—reportedly due to begin in December 2019—has been delayed as Corvette C7 orders first need to be completed, before the Bowling Green factory is retooled for the C8.

By the end of the forecast period, the report expects GM’s output to be in excess of 8.6 million units, up almost 4% over 2018. “Beyond 2019, GM’s output should be on a rising trend through to 2023,” commented Storey, “with China accounting for the bulk of the anticipated increase, followed by South America and then NAFTA.”

Close
Close