Last month, the United Auto Workers (UAW) labor union went on strike against General Motors (NYSE:GM) and several other auto companies. The company’s labor contract with UAW expired on Sept. 15 and the two companies were unable to renegotiate the contract.
Since then, 46,000 GM workers joined the picket lines at factories across the U.S. This is the largest strike the UAW has done since 2007 and it has caused a number of problems for General Motors. The strike is now going on 19 days and investors are waiting to see when a deal will be reached.
The two sides have met since the strike began and while they agree progress has been made, they are still divided on a few key issues. Here are three things you need to know about how the UAW strike will affect GM stock.
GM Laid Off 6,000 Workers Due to the Strike
Last week, GM was forced to lay off 6,000 workers at a highly profitable plant in Mexico. The plant produces Chevy Silverados and GMC Sierra 1500 pickups. The company said the layoff decision was due to a parts shortage resulting from the ongoing strike.
That means GM has laid off 10,000 non-UAW represented employees in North America since the strike began. These layoffs are a big problem for the company because it means that all of GM’s pickup production in North America have been cut off.
This is an essential aspect of the company’s profitability. It will be hard for GM to make up for that loss going into the next quarter.
The Strike Could Still Hurt GM’s Bottom Line
The estimates vary as to how much money GM could lose during the strike. But everyone seems to agree that “GM is going to start feeling the pain.”
According to the Wall Street Journal, GM stands to lose up to $100 million per day if the strike continues. JP Morgan told its clients that the strike could end up costing GM more than $1 billion.
And according to a USB analyst, the ongoing strike could cut as much as 10 cents off of the company’s third-quarter earnings. However, this prediction proved to be inaccurate.
The Company’s Sales Are Up in Spite of the UAW Strike
This week, GM released its third-quarter earnings and in spite of analysts’ foreboding, the company’s auto sales were up. The company’s total sales increased by 6.3% and its sales on crossovers and pickups grew by double digits.
Of course, it’s possible the company just hasn’t started feeling the pinch on the ongoing strike yet. And the company does have a large amount of inventory on hand.
It’s still unclear when the strike will be resolved, though some people expect it could happen by mid-October. The strike caused the GM stock price to fall over the past month, though the shares are still up 4% year-to-date.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.