UAW Strikes Expected to Cost GM $1.2 Billion

DETROIT —  As another union local threatened a potentially crippling walkout, General Motors Corp. revealed Tuesday that two continuing strikes will reduce second-quarter after-tax profits by nearly $1.2 billion.

The earnings dip, equivalent to $1.79 a share, is larger than most analyst projections and comes as 3,400 parts workers in Dayton, Ohio, gave their leaders authority to call another strike against GM.

A new strike is unlikely to occur until the current labor disputes in Flint, Mich., are settled. The strategy increases union leverage since work stoppages at key parts plants can shut down GM’s production systemwide within a few days.

In a filing Tuesday with the Securities and Exchange Commission, GM said the strikes by the United Auto Workers have resulted in lost production of 227,000 cars and trucks since June 5, when the first walkout began in Flint.

“To the extent that work stoppages continue to disrupt the production and shipment of vehicles, the resulting deferral or decline in revenues will have a continuing impact on GM’s results of operations,” the filing said.

The company’s second-quarter earnings could drop below $450 million, analysts said, compared with a record profit of $2.1 billion in the year-ago period and $1.6 billion in the first quarter of 1998. GM earned $6.7 billion in 1997.

GM, the nation’s largest industrial concern, said second-quarter earnings will be off $890 million for its North American auto operations and $290 million for its Delphi auto parts unit.

The estimates do not take into account possible production and revenue recoveries once the current strikes by 9,200 UAW members are settled. The auto maker is expected to make up some lost production with overtime.

Before GM’s disclosure, analysts had estimated the auto maker’s strike-related losses at $850 million to $1 billion. If the strikes continue past GM’s two-week summer vacation shutdown, which ends July 12, the losses could mount at a rate of $80 million a day, Lehman Bros. analyst Joseph Phillippi said.

“To put this in perspective, if the strike lasted a full quarter, it would cost GM about $6 billion,” he said, adding that such a catastrophic shutdown would quickly deplete GM’s $13-billion cash reserve.

GM’s stock plunged Tuesday on news of the earnings reduction. Shares fell $1.44 to close at $66.81 in trading on the New York Stock Exchange. The stock has declined 11.4% since the first strike began.

The labor dispute centers on the UAW’s concern about job losses and GM’s push for greater efficiency. The strikes have forced GM to close 26 of 29 assembly plants and scores of parts facilities and to lay off 163,000 workers.

The strikes have rippled through the nation’s economy, forcing layoffs of workers dependent on GM and crimping supplier earnings. Economists say the strikes could reduce second-quarter gross domestic product by 0.5%.

GM is trying to reduce cash expenditures and said it “is carefully reviewing future spending for products and facilities.” Labor experts say GM is attempting to pressure the UAW with suggestions that it might permanently close striking or inefficient factories.

In Dayton, meanwhile, UAW members voted to strike, but any walkout must be approved by union leaders in Detroit, who have indicated they would not do so until the Flint disputes are settled.

The Ohio factories were the scene of a bitter 17-day strike against GM in 1996 that cost the company $900 million. The dispute centered on GM’s desire to contract work to outside suppliers.

The threatened Dayton walkout ups the ante in the current face-off. Even if GM can settle the Michigan strikes, it could see operations halted again within a matter of days.

The issues in Dayton are similar to those in Flint: job security versus global competitiveness. And since the Dayton plants supply brakes to many GM assembly plants, the effects of a strike there would spread quickly.

UAW officials in Dayton allege that GM has violated the local contract that required the company to hire 70 more workers. Instead, GM has presented a plan to slash 1,800 jobs.

GM argues that the two plants have lost $40 million in the last two years and that the UAW has resisted changes to improve efficiency.

“We have lived up to the letter and intent of the contract,” said GM spokesman Jim Hagedon.

The company faces other labor disruptions as well. UAW workers at a stamping plant in Indianapolis are expected to take a strike vote July 12.