Lengthy UAW strike at General Motors to cost $1.5 billion: Credit Suisse

Lengthy UAW strike at General Motors to cost $1.5 billion: Credit Suisse
General Motors likely lost production of about 100,000 vehicles in the third quarter because of an ongoing workers’ strike. (AFP)
Updated 11 October 2019

Lengthy UAW strike at General Motors to cost $1.5 billion: Credit Suisse

Lengthy UAW strike at General Motors to cost $1.5 billion: Credit Suisse
  • General Motors likely lost production of about 100,000 vehicles in the third quarter
  • The carmaker may now have to revise its target of $4.5 billion in cost savings through 2020

An ongoing workers’ strike at General Motors Co. could cost the automaker about $1.5 billion, brokerage Credit Suisse said on Friday, throwing the US automaker’s cost reduction plans off the track and forcing key suppliers to cut their 2019 outlook.
The brokerage has assumed the strike by the United Auto Workers (UAW) union, currently in its 26-day, to last until Oct. 21.
GM, which likely lost production of about 100,000 vehicles in the third quarter, is at the risk of losing another 170,000 vehicles in the current quarter, the brokerage said, with the impact spreading to some of GM’s facilities in Mexico and Canada that receive parts from its US factories.
“While investors may look through the one-time impacts ... the strike reminds us of the challenge of investing in OEMs at this point in the cycle,” analyst Dan Levy wrote in a note.
The brokerage said GM may now have to revise its target of $4.5 billion in cost savings through 2020, announced last year, as production curtailments and labor-related cost reductions may not happen as fast as the company had expected.
“We assume just under $900 million of reduced costs or 20 percent of the original (target),” Levy said.
Credit Suisse said the strike will hurt suppliers, including American Axle, Aptiv, Lear Corp, Delphi Technologies, and Dana Inc, whose exposure to GM varies between 5 percent and 18 percent, with American Axle at 40 percent.
Last week, Canadian auto parts maker Linamar Corp. estimated a profit impact of up to C$1 million per day due to a fall in orders from its customer General Motors.
Credit Suisse lowered its 2019 earnings per share estimate for GM by 83 cents to $6.11, below the Wall Street consensus of $6.56, according to IBES data from Refinitiv, as the No.1 automaker is also at the risk of losing market share to smaller rivals such as Ford Motor.
The brokerage has cut its price target on GM’s stock to $46 from $50, while reaffirming its “outperform” rating.
Of 19 brokerages, 14 rate GM “buy” or “higher” and five “hold,” with no “sell” rating. The median price target for the stock is $48, representing an upside of more than 38 percent to Thursday’s close.