Despite its third quarter earnings being impacted by the 40-day strike against General Motors by the United Auto Workers, the United States auto maker managed to report a profit for the quarter because of the presence of a good amount of inventory with the company when the strike was announced and implemented in the middle of September.
But the performance of the company was worse than the same period a year ago. A pre-tax loss of $1 billion was the impact of the loss to the company during the quarter in North America, GM said. The company would be feeling the bulk of the impact of the stroke in the fourth quarter of the current year and at the beginning of next year.
To account for the impact of the strike, GM had lowered its full-year profit projection. The strike is also expected to dilute its full-year per-share earnings by $2, according to the projections of the company. That would account for a total of $2.86 billion hit for the year in terms of net income.
The various cost cuttings measures including the idling of four US plants, one of which was its factory straddling the border of Detroit and Hamtramck, Michigan, would enable the company to make savings of $4.5 billion by the end of 2020, GM had said. However, in a new labor agreement, the company has agreed to make fresh investment in its Detroit-Hamtramck plant for the construction of electricity powered pickup truck and electric SUVs. This has prompted GM to further adjust its annual saving projection to a range of $4 billion to $4.5 billion. The company would however not reopen its other three plants – the Lordstown Assembly in Ohio and Warren and Baltimore transmission plants, GM said.
GM Chief Financial Officer Dhivya Suryadevara said that a hit of about $500 million to GM’s target savings for the end of 2020 is te ultimate impact of the strike. “We’re going to find every cost savings we can regardless,” said Suryadevara.
Since a host of its best-selling vehicles, such as pickups and SUVs, are already being produced at full capacity, therefore GM will face an uphill task to make up the losses that it has incurred by the strike during the remaining time of the current year, the company said.
“Our new labor agreement maintains our competitiveness, preserves our operating flexibility and allows us to continue improving our quality and productivity,” said GM CEO Mary Barra in a statement. “We remain focused on strengthening our core business and leading in the future of personal mobility.”
GM’s revenue was $35.5 billion, down 0.9% from the third quarter of 2018.
“GM delivered what Wall Street analysts had hoped for – better-than-expected earnings – despite all of the labor turmoil,” said Michelle Krebs, executive analyst for Autotrader. “They will be less thrilled, but not surprised, that GM’s guidance for the full-year has been revised downward.”
(Adapted from USAToday.com)