October 16, 2019 / 9:16 PM / a month ago

Breakingviews - GM strike deal brings less relief than expected

The GM logo is seen at the General Motors Warren Transmission Operations Plant in Warren, Michigan October 26, 2015. REUTERS/Rebecca Cook

NEW YORK (Reuters Breakingviews) - New Buicks, Cadillacs and Chevys may soon start rolling out of factories across America again. On Wednesday, negotiators for the United Auto Workers and General Motors finally struck a deal aimed at ending their month-long dispute over the next four-year workers contract. Details may not emerge until Thursday, and the 48,000 or so union members who work at the $52 billion automaker have to vote on it. Either way, the resolution brings less relief than expected.

That’s because the strike didn’t seem to hurt much, overall. It ought not to have happened at all. GM was guilty of some reckless driving in mid-September by not submitting a decent proposal until the union downing tools was all but inevitable. Even then, more than a few days of picket lines made little sense.

Union politics is partly to blame, too. Perhaps the UAW wanted to be seen flexing its muscles after at least a decade largely accommodating the needs of a struggling industry. And the union is also caught in the middle of an FBI corruption investigation that led to a search of President Gary Jones’ house, among other locations. That made the GM standoff a potentially useful distraction.

GM shareholders, meanwhile, were complacent. As of Wednesday afternoon, the company’s stock was some 5.5% below its pre-strike level, implying a hit to 2019 earnings of $500 million. Yet the mean estimate of sell-side analysts reckons the cost could be as much as double that, Refinitiv data suggest, with some putting lost production alone as high as $2 billion.

The timing helped GM avoid the worst. It had an excess of vehicles waiting to be sold as the strike started. And it has the capacity to make up some of the lost production with overtime. That may have made a resolution less urgent for executives led by boss Mary Barra. Workers, who had to subsist on strike pay of just $250 a week for most of the time, clearly suffered. On this occasion, the company may have escaped with minor damage.

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