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GM Strike Ends After Almost Six Weeks at Cost of $2 Billion

David Welch

(Bloomberg) -- General Motors Co. employees voted in favor of a new four-year labor agreement reached with the United Auto Workers, ending a nearly six week-long strike that has cost the company about $2 billion and rippled through the U.S. economy.

The union said the deal was approved by 57.1% of its members, enough to ratify the contract and stop the longest automotive walkout in 50 years. “General Motors members have spoken,” Terry Dittes, a UAW vice president and head of its GM department, said in a statement.

The union will next target Ford Motor Co. in its contract negotiations. The Dearborn, Michigan-based company will be under pressure to avoid a work stoppage while it’s going through a high-stakes strategic revamp of its operations. S&P Global Ratings downgraded Ford’s debt to one level above junk on Friday, saying the overhaul will be difficult to pull off.

The prolonged strike, which began on Sept. 16, dented revenue up and down the automotive supply chain, and potentially shaved tens of thousands of workers from an October jobs report due out next week from the Labor Department.

GM and the UAW reached their agreement last week, awarding workers pay raises, $11,000 ratification bonuses and a route for temporary employees to reach full-time status. The contract also preserves the automaker’s generous health-care plan.

Making Up Lost Time

“GM is proud to provide good-paying jobs to tens of thousands of employees in America and to grow our substantial investment in the U.S.,” Mary Barra, GM’s chief executive officer, said in a statement. “As one team, we can move forward and stay focused on our priorities of safety and building high-quality cars, trucks and crossovers for our customers.”

Now GM needs to make up for lost time. The automaker built up inventory before the strike, especially with its new full-size pickup trucks, but it will take a week to get production up to full capacity, said Jeff Schuster, senior vice president of forecasting for research firm LMC Automotive.

The company reports earnings on Oct. 29 and is likely to detail the impact of the strike and address how much can be recouped. Of the $2 billion lost, it could recover $431 million of that by year’s end, Credit-Suisse analyst Dan Levy wrote in a recent research note. But GM is unlikely to hit its adjusted earnings estimate of $6.50 to $7 a share, said David Whiston, a Morningstar Inc. analyst.

Shares of the automaker rose 2.6% to $36.74 on Friday, the highest close in almost a month.

Electric Hummer

The new contract is expected to raise the automaker’s labor costs by at least $100 million a year, though it allows the company to follow through with closing all but one of the four U.S. plants it announced plans to shutter almost a year ago.

While the deal likely won’t help reduce the $13-an-hour premium that the Center for Automotive Research estimates GM pays workers over foreign automakers’ wage rates, it’s unlikely to lead to an increase in vehicle prices. Labor expenses only account for about 5% of the cost of a car.

GM committed to investing $7.7 billion in U.S. plants and create or retain 9,000 jobs as part of the deal. The automaker will save a factory that sits on the border between Detroit and the town of Hamtramck, where it will build a new line of electric trucks and sport utility vehicles. Among the models under consideration are SUVs that would revive the Hummer brand.

The automaker also plans to build a new joint-venture facility in Lordstown, Ohio, that will make battery packs for electric vehicles. That’s still a setback for workers at a now-idled assembly plant in Lordstown that once made Chevrolet Cruze compact cars. GM has no new work for that facility or two former transmission plants in Baltimore and Warren, Michigan.

Benchmarking GM

The contract -- which the UAW will use as a benchmark for its negotiations with Ford and Fiat Chrysler Automobiles NV -- included the following concessions to workers:

$60,000 early-retirement bonuses for up to 2,060 eligible employees who leave between Dec. 31 and Feb. 28$11,000 ratification bonus for senior employees; $4,500 for temporary workersHourly pay raises from $18 to $32.32 for entry-level workers within four years or less3% wage increases in the second and fourth year of the contract, and 4% lump sums in first and third yearsOne-time company contribution of $1,000 to personal savings plan for members with defined pension plans

Those payments were enough to seal what started out as a tense set of negotiations.

“The ratification vote is decisive,” said Harley Shaiken, labor professor at the University of California at Berkeley. “Workers were out for a long time and they had to consider how much longer they would have to stay out and what they would get. That calculation was swayed by the money up front.”

(Updates with analyst commentary from seventh paragraph.)

--With assistance from Keith Naughton.

To contact the reporter on this story: David Welch in Southfield at dwelch12@bloomberg.net

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Chester Dawson, Craig Trudell

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