GM 3Q profit falls 7 per cent as auto workers strike cuts production
Published Tuesday, October 29, 2019 10:34AM EDT
The General Motors Canada office in Oshawa, Ont., is photographed on Wednesday, June 20, 2018. (THE CANADIAN PRESS/ Tijana Martin)
DETROIT -- Only two weeks of a lengthy strike against General Motors happened in the third quarter, but that was enough to dent the company's net profit by about US$1 billion.
GM reported Tuesday that its third-quarter net profit fell 7% as a strike by the United Auto Workers union brought its U.S. factories to a standstill.
The Detroit automaker made $2.35 billion, or $1.60 per share, but 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. GM said the strike will wind up costing it $2.86 billion in net income for the year.
That forced the company to cut its full-year pretax profit guidance 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% to $35.47 billion, but still surpassed analyst estimates of $34.95 billion.
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 3% of the cost.
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 GM lost production of 300,000 vehicles, Chief Financial Officer Dhivya Suryadevara told reporters 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 already were running at full capacity before the strike to meet demand, she said.
Before the strike, GM had said its restructuring efforts this year, including the plant closures, would save it $4.5 billion on an annual basis. Because of the cost of the new UAW contract, the company revised that number to a range of $4 billion to $4.5 billion, Suryadevara said.
GM said despite the strike, its pretax 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 pretax 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% in the U.S., the company's most profitable market. The average sales price rose 2.8% 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," said Jeremy Acevedo, senior manager of insights, said in a statement. The company, he said, is showing benefits of shedding slow-selling cars from its lineup, and production of new full-size pickup trucks are getting up to speed.
Light trucks accounted for just over 88% of GM's sales during the third quarter. Truck sales rose in the 14% in the third quarter, the first quarterly increase of the year. GM has been switching factories over to the new truck through the year, a process that was halted by the strike.