Strike at General Motors to cost $1.5 bn, says Credit Suisse
The ongoing United Automobile Workers strike has already seen GM lose 100,000 vehicles in the third quarter
Bengaluru — An ongoing workers’ strike at General Motors (GM) could cost the vehicle maker about $1.5bn, brokerage Credit Suisse said on Friday, throwing the US company’s cost reduction plans off the track and forcing key suppliers to cut their 2019 outlook.
Credit Suisse has assumed the strike by the United Automobile Workers (UAW) union, currently in its 26th day, to last until October 21.
GM, which likely lost production of about 100,000 vehicles in the third quarter, is at the risk of losing another 170,000 vehicles in the current quarter, Credit Suisse said, with the impact spreading to some of GM’s facilities in Mexico and Canada that receive parts from its US factories.
“While investors may look through the one-time impacts ... the strike reminds us of the challenge of investing in original equipment manufacturer (OEMs) at this point in the cycle,” analyst Dan Levy wrote in a note.
Credit Suisse said GM may now have to revise its target of $4.5bn in cost savings throughout 2020, announced last year, as production curtailments and labour-related cost reductions may not happen as fast as expected. “We assume just under $900m of reduced costs or 20% of the original [target]," Levy said.
Credit Suisse said the strike will hurt suppliers, including American Axle, Aptiv, Lear, Delphi Technologies, and Dana, whose exposure to GM varies between 5% and 18%, with American Axle at 40%.
Last week, Canadian automotive parts maker Linamar estimated a profit impact of up to C$1m per day due to a fall in orders from GM.
Credit Suisse lowered its 2019 earnings per share estimate for GM by 83c to $6.11, below the Wall Street consensus of $6.56, according to IBES data from Refinitiv, as the number one car maker is also at the risk of losing market share to smaller rivals such as Ford Motor.
Credit Suisse has cut its price target on GM’s stock to $46 from $50, while re-affirming its “outperform” rating.
Of 19 brokerages, 14 rate GM “buy” or “higher” and five “hold”, with no “sell” rating. The median price target for the stock is $48, representing an upside of more than 38% on Thursday’s close.