GM discloses $2.6 billion earnings loss due to workers' strikes
24 May 2008
The largest US auto maker, General Motors (GM) has disclosed the quantum of losses it suffered as a result of the strikes at the plants of one of its largest suppliers, American Axle & Manufacturing Inc. In a Form 8-K filing to the US Securities and Exchange Commission (SEC) on 22nd May, GM said that the two strikes are expected to drag down earnings by $2.6 billion over two quarters.
According to the filing, the strike halted or slowed production at as many as 33 GM factories, reducing output by about 330,000 vehicles, a production loss which the company expects to recover only partially, considering ''the current economic environment in the United States and to the market shift away from the types of vehicles that were impacted by the action at American Axle.'' The latest cease work ended only last week. (See: GM plants to resume production as strike at American Axle ends)
Additional strikes by United Auto Workers (UAW) locals over site-specific work rules at a Chevrolet Malibu plant in Kansas and a GMC Acadia factory in Michigan will result in a pre-tax expense of $200 million, GM said. It had lost about 33,000 units of production as a result.
GM previously disclosed that it had agreed to provide American Axle upfront support capped at $200 million to help fund employee buyouts, early retirements and buy downs to facilitate a settlement of the work stoppage. Final negotiations resulted in total support of $215 million. This was a huge jump from the initial GM estimate of $15 million disclosed on 8th May.
Despite trying to stay out of the protracted strike at American Axle, GM ultimately plans to pay $215 million into the settlement between the UAW and the auto supplier. Union members ratified the deal, which included wage cuts in exchange for buy-downs and buyouts and a pension freeze, with a 78 per cent vote.
Of the $215 million that GM is contributing to the settlement, $175 million will be in cash, paid in three installments through 1st April, 2009. The rest will be in the form of GM covering the supplier's portion of health care and life insurance payments owed to American Axle workers who spent most of their careers with GM and technically retired from the company.
GM's shares fell 92 cents, or 5 per cent, to $17.51 in afternoon trading Friday.