Autos

Wall Street remains patient as UAW strike against GM drags on, talks progress

Key Points
  • The UAW's strike against GM could enter its third week barring any breakthroughs over the weekend.
  • GM stock, according to Wall Street analysts, isn't being significantly impacted by the strike because it's viewed as a short-term issue.
  • While all unresolved issues are to top negotiators, major economic issues and the company's use of temporary workers remain, according to people familiar with the talks.
United Auto Workers members on strike picket outside General Motors' Detroit-Hamtramck Assembly plant on Sept. 25, 2019 with Vermont Sen. Bernie Sanders (far left) in Detroit.
Michael Wayland | CNBC

DETROIT — The United Auto Workers' strike against General Motors will enter its third week barring any breakthroughs over the weekend, potentially causing additional layoffs and costing the automaker millions more in lost production.

But shares of the Detroit automaker have remained relatively stable after falling more than 4% on Sept. 16, the first day of the work stoppage. The stock opened Friday at $37.84, up 11% for the year.

Investors aren't all that worried because they see the strike as short-term pain that will pay off with lower long-term employee costs — even if it costs the automaker hundreds of millions, if not billions, of dollars in lost production.

"We understand this is a headline and it's newsworthy, but in the grand scheme of GM's strategy, they're going to get this behind them, and they have much bigger issues to deal with at the board level," Morgan Stanley analyst Adam Jonas said Friday on CNBC's "Squawk on the Street," referring to emerging technologies such as autonomous and all-electric vehicles.

Jonas said such a strike against GM prior to its 2009 bankruptcy, which allowed the automaker to negotiate more flexibility into its contract with the UAW, "would have threatened the solvency of the company."

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Bank of America Merrill Lynch analyst John Murphy, in a note to investors Friday, agreed: "In total, the strike is not good for GM's financials in the short run, but given (pre-bankruptcy) GM's history with labor contracts, we believe investors remain supportive of a tough/fair stance."

Wall Street analysts estimate GM is losing roughly $50 million to $100 million per day in lost production. UBS' Colin Langan estimated a prolonged strike would shave roughly 10 cents off GM's earnings per share during the third quarter, specifically from the lost production at its pickup and SUV factories.

Barclays analyst Brian Johnson on Wednesday cautioned the strike could drag on into the fourth quarter, leading to roughly 100,000 units of lost production in the third quarter, costing roughly $750 million for GM. However, Johnson said roughly 25% of lost production could be recouped in the fourth quarter.

Talks progressing

While all unresolved issues have been in the hands of top negotiators since Wednesday, major economic issues and the company's use of temporary workers remain, according to people familiar with the talks.

Typically, once issues have been pushed to the top negotiators, or the "Main Table," the two sides are closing in on a deal and begin more intense negotiations. However, Colin A. Lightbody, a labor consultant and longtime negotiator for Fiat Chrysler, said he doesn't believe that's the case for these talks at this time.

"There doesn't appear to be a sense of urgency, which to me would mean the parties are still far apart," said Lightbody, who negotiated 12 contracts for Chrysler between the UAW and Canadian auto unions since 1999. "There are some pretty big issues still out there."

United Auto Workers members on strike picket outside General Motors' Detroit-Hamtramck Assembly plant on Sept. 25, 2019 in Detroit.
Michael Wayland / CNBC

Negotiators on Thursday worked well into the night, later than they have been this week, according to two people familiar with the talks. That's a positive sign for the talks, according to Lightbody.

"Typically, if you're making good progress, the parties will work later into the evening," he said.

The Thursday progress followed the automaker reinstating health-care benefits for its 48,000 workers who are on strike. The automaker cut health-care coverage for union members last week, moving them to more expensive, temporary COBRA plans last week.

Ripple effect

Thousands of workers at auto suppliers and non-UAW facilities with GM have been placed on temporary layoffs as a result of the strike, now in its 12th day.

GM this week confirmed it temporarily laid off 450 people at its engine plant in Silao, Guanajuato, Mexico, who produce V-8 engines. It brings the number of layoffs for non-UAW represented employees in North America with GM to about 4,000, according to officials.

The total number of employees at auto suppliers who have been temporarily laid off by the strike is unknown but estimated to be in the thousands.

Jerry Dias, president of Canadian trade union Unifor, which represents GM and other auto workers in Canada, has said 2,000 or more of its members who work for GM's suppliers have been furloughed.

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Magna International, an Ontario-based supplier for several components to GM, this week confirmed to CNBC that approximately half of its divisions in the U.S. and Canada have "started to experience sporadic layoffs."

Tracy Fuerst, a spokeswoman for Magna, declined to comment on how many workers have been temporarily laid off. The company employs about 170,000 people globally, according to its 2018 annual report.

Citigroup, in a note to investors last week, mentioned Magna as well as American Axle, Lear and Aptiv as being suppliers that would be most impacted by the strike. Representatives for the other companies declined to comment or did not respond.

Of those companies, shares of American Axle have been impacted the most, down about 10% since the first day of the strike. Shares of Lear, a major seating supplier to GM, are down 5% during that time. Shares of Magna and Aptiv have been relatively unimpacted by the strike.