Higher-Than-Expected Consequences Of The UAW Strike Did Not Erase GM's Great Recession Restructuring Era Efforts

Earlier today, General Motors GM delivered some much-needed good news. Although its new labor contracts in North America will be raising costs with consequences of the bitter UAW strike being greater than expected, GM expects to fully offset these hits.

GM’s Updates

The new labor agreements will result in costs of $9.3 billion, or an average of $575 per vehicle. GM also revealed the cost of the UAW strike added up to $1.1 billion, being the result of lost production of 95,000 vehicles. Although higher than initially expected, GM expects to earn nearly $10 billion this year. Therefore, GM expects to “fully offset” these higher labor costs in 2024. 

GM’s Revised Guidance

GM guided for this year’s net income to be in the range between $9.1 billion to $9.7 billion, which is lowered from its priorly guided range between $9.3 billion and $10.7 billion. GM forecasted adjusted earnings before interest and taxes in the range between $11.7 billion an $12.7 billion, also lowering its prior guidance in the range between $12 billion and $14 billion.

But capital spending for the year is expected to be in the lower half of its previous range between $11 billion and$12 billion, owed to its decision to scale back and postpone some of its EV plans. For 2024 alone, the new contracts are expected to raise GM’s costs by by $1.5 billion, or $500 per vehicle.

With its Winning with Simplicity strategy that aims to reduce design and engineering costs while simplifying complexity in vehicle orders and manufacturing, GM continues to work on cutting fixed costs by $3 billion by the end of next year, which amounts to a net reduction of $2 billion when depreciation and amortization are taken into account

In the third quarter, CFO Paul Jacobson stated that lower marketing, engineering and employee costs resulted in YoY savings of $500 million with another $500 million expected in the undergoing quarter.  Benchmark analyst Michael Ward agrees, stating that the increased labor costs did not erase the structural improvements that GM realized over the past 15 years.

While GM now has a clear path forward with ratified labor contracts, the EV king Tesla Inc TSLA is getting ready for its November 30th Cybertruck event. The Cybertruck is already in showrooms ahead of the official launch. Tesla will begin with Cybertruck deliveries on Thursday, after many delays. Yet, Tesla still did not reveal Cybertruck’s pricing nor its driving range nor its specs nor who will be receiving the highly anticipated electric pickup. Tesla will be live-streaming the event on Musk’s platform X. But despite the excitement, Musk warned earlier that it will take a year up to year and a half before the eagerly anticipated Cybertruck becomes a cash flow contributor for the EV king. While many feared that the Detroit automakers, including GM, will lose the slightest chance of catching up to Tesla in the EV race due to the UAW strike, GM's latest update shows not all is lost as its earlier improvement efforts paid off and amortized the blow of the UAW strike and the consequent agreements.

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