The United Auto Workers’ (UAW) nationwide strike against General Motors (GM - Free Report) since Sunday midnight has been making headlines. With around 48,000 workers picketing at General Motors’ factories, this marks the first major stoppage at the company in the last 12 years. Reportedly, the strike has led to the shutdown of 33 manufacturing plants in nine states across the United States and 22 parts-distribution warehouses.
The UAW called a strike against the U.S. auto giant after the country’s labor contract negotiations hit an impasse. While the UAW union signed indefinite contract extensions with Ford (F - Free Report) and Fiat Chrysler (FCAU - Free Report) , General Motors’ four-year contract with workers expired on Sep 15 without any agreement on replacement.
UAW Demand for Overdue Reward From General Motors
When General Motors had filed for bankruptcy in 2009, the company’s unionized workers bore the brunt of the downturn to help revive the firm’s financial health. The workers had agreed to give up pay increases and made other concessions to help the company stay afloat during the trying times. During that period, the UAW permitted General Motors to employ a new workforce at roughly half the hourly wage and lower retirement benefits. Also, the company was allowed to hire temporary workers with even less pay package and benefits.
While the workers had given up several concessions during General Motors’ hard times, it bounced back and delivered strong profits over the past few years. The UAW strongly feels that it is high time for General Motors to share part of its profits and that the workers deserve a higher pay to recover from their past concessions.
The labor union wants the company to boost workers’ pay and profit-sharing bonuses. In addition to fair wages, the UAW is also asking for affordable and quality health care benefits as well as job security for the workers. Job protection and the reopening of some idled factories in North America have also been part of the contract negotiations.
The company caused quite the uproar last year when it revealed plans of shuttering five factories in the United States and Canada, as well as slashing 14,000 jobs over the next two years. General Motors’ decision received a backlash, as many were of the opinion that the company had failed to use millions of dollars received from corporate tax cuts to invest properly in workers.
General Motors’ Take on the Scenario
While the labor union is of the opinion that General Motors has been largely unresponsive to its demands, the U.S. auto giant claims that it has presented a solid offer to improve workers’ wages and benefits. The company intends to make $7 billion worth of factory investments in the United States and create more than 5,400 additional jobs. General Motors has pledged to build an all-new electric pickup truck at the Detroit Assembly Plant. The company also plans to open a battery-cell manufacturing facility in Lordstown, OH.
The firm also cited that the said offer includes wage increases, higher profit sharing, additional health benefits and a payment of $8,000 to each worker upon ratification. However, the UAW is not of the opinion that General Motors’ offer addresses key demands to its satisfaction.
Notably, General Motors’ last major strike was in 2007 when 73,000 workers at more than 89 facilities walked off the job for two days. Although negotiations between General Motors and the UAW is underway, there’s no guarantee of a quick resolution. While a few days’ strike may hamper the firm’s third-quarter earnings a bit, it would not cost the company much. However, if the strike lasts for weeks or longer, it may likely lead to a shutdown of General Motors’ factories in Canada and Mexico, as well as adversely impact the firm’s revenues and earnings. With dealers missing out on sales due to lack of inventory, it will become difficult for General Motors to recoup the lost volumes and revenues. A prolonged strike will destabilize the company and may hurt the broader U.S. economy as well.
As of now, both warring sides - the management and the labor union - are waiting for the other side to blink first.
Zacks Rank and A Key Pick
General Motors currently carries a Zacks Rank #2 (Buy). Another top-ranked player in the same industry is IAA, Inc. (IAA - Free Report) , holding a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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