In a recent financial report, General Motors (NYSE:GM) announced that it anticipates a substantial reduction in pretax earnings, with the ongoing strike by auto workers costing the company an estimated $800 million this year alone. Additionally, if the strike expands to encompass more GM plants, the losses could rise significantly, according to the company’s Chief Financial Officer, Paul Jacobson.

The strike has already taken its toll on GM’s bottom line, with the United Auto Workers (UAW) recently extending the strike to Arlington, Texas, which houses one of GM’s most profitable facilities, responsible for manufacturing SUVs. This development has resulted in an escalation of the financial impact of the strike.

In its financial results for the third quarter, GM reported a net income of over $3 billion from July through September. However, this figure marked a 7% decrease from the same period the previous year, largely due to the lost production caused by the strike, as well as increased warranty costs. Consequently, GM withdrew its earlier full-year pretax earnings estimates, citing uncertainty surrounding the duration of the strike and the potential shutdown of more factories.

Excluding one-time items, GM reported earnings of $2.28 per share, surpassing Wall Street’s estimates of $1.87. The company’s revenue of $44.13 billion also exceeded estimates of $42.48 billion, as reported by data provider FactSet.

Despite these challenges, General Motors Co.’s shares experienced a slight increase in trading on Tuesday.

The UAW initiated the strike on September 15, nearly six weeks ago, against GM, Ford, and Jeep maker Stellantis. Initially, the union had refrained from targeting factories responsible for producing GM’s most lucrative vehicles, such as pickup trucks and large SUVs. However, the recent escalation of the strike highlights the potential risks to these high-revenue facilities the longer the strike continues.

In a note to shareholders, GM’s CEO, Mary Barra, revealed that the company had made a substantial offer to the union, which would increase the top factory pay to $40.39 per hour within four years. She indicated that the company is approaching its limits in terms of compensation and emphasized the need to maintain financial sustainability.

Union President Shawn Fain argued that the automakers are generating substantial profits and paying their CEOs exorbitant amounts, making it possible to increase worker compensation.

Investors have expressed concerns regarding the financial implications of an extended strike, GM’s slowdown in electric vehicle production, and the company’s ability to implement cost-cutting measures in light of the union’s demands. GM has planned to offset higher labor costs by reducing fixed annual costs by $2 billion by the end of 2024 and slowing electric vehicle production to match short-term demand.

GM recently announced the postponement of production at a Michigan electric pickup truck factory until late 2025 to align with market demand, which is expected to save the company $1.5 billion next year.

Barra acknowledged that the transition to electric vehicles might encounter challenges but emphasized GM’s preparedness to adapt swiftly. She cited GM’s plan to revamp the Chevrolet Bolt electric vehicle by incorporating new battery and other technologies for a 2025 release, requiring less capital investment while leveraging customer enthusiasm for the Bolt EV.

GM maintains its commitment to increase electric vehicle manufacturing capacity to 1 million units annually in North America by the end of 2025. However, the previous goal of building 400,000 electric vehicles in North America by mid-next year has been scrapped. GM still expects to achieve low-to-mid single-digit profit margins on electric vehicles by 2025.

Despite the strike and other challenges, GM reported strong demand for its vehicles and sustained high prices throughout the third quarter, with U.S. sales increasing by 21%. The average U.S. selling price for GM vehicles remained robust at $50,750, only slightly down from the previous quarter.

Although GM’s sales appeared strong on the surface, experts warn that the situation could change as the colder months approach. During this period, consumers typically seek larger four-wheel-drive vehicles. However, a prolonged strike may lead to plant closures and reduced production of these lucrative vehicles, potentially resulting in sales declines during a critical time in the automotive calendar.

 

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