On Tuesday (October 24th) Eastern Time, General Motors released its third quarter financial report, which was the earliest among the "Big Three" American automakers, including General Motors, Ford, and Chrysler's parent company, Stellantis, who were facing a strike by the United Auto Workers (UAW).
Although the third quarter report exceeded expectations, the strike still caused General Motors to withdraw its annual profit guidance. The market is currently closely monitoring the performance of the other two car companies and the progress and impact of the strike.
Jon Maier, Chief Investment Officer of Global X ETF, told First Financial reporters that a sustained strike could pose challenges to car production, while the possibility of wage increases could push up production costs, ultimately spreading to consumers, forcing them to bear higher car prices.
He added that in fact, in the second quarter of this year, the default rate of car loans for consumers of all ages has increased, and the recovery rate has also increased. At a time when financing costs have already risen, the further increase in new car prices brought about by the ongoing strike poses a particular challenge to the lowest income class. However, due to increased supply and improved supply chain conditions, second-hand car prices have decreased. This may prompt consumers to view used cars as a cost-effective alternative to new ones.
Strike escalates again, General Motors withdraws its annual profit guidelines
According to the financial report, General Motors' revenue in the third quarter was $44.1 billion, nearly $1 billion higher than market expectations. Meanwhile, due to the growth of North American business and historically high car pricing, adjusted earnings per share were $2.28, which also exceeded market expectations of $1.84.
But as the strike entered its sixth week, making the company's financial prospects uncertain, General Motors withdrew its annual profit guidance of $14 billion. In fact, the strike has brought enormous financial pressure to General Motors, which lost $200 million in the third quarter due to the strike. General Motors predicts that the strike will also result in weekly losses of $200 million.
General Motors CEO Mary Barra stated in a letter to shareholders, 'Accepting unsustainable high costs will endanger our future and the work of General Motors team members, and I will not do anything that will endanger our future.' General Motors needs to reach an agreement to enable the company to maintain an adjusted profit margin target of 8-10% in North America.
Paul Jacobson, the company's Chief Financial Officer, said, "We will not speculate on the duration and extent of the strike. We still hope that we can continue to make progress and address this issue." He also stated that due to the slowdown in sales growth of plug-in vehicles, plans related to the electric vehicle business will be postponed, The opening of GM's electric pickup truck factory in Orion, a suburb of Detroit, Michigan, will be postponed by one year until later 2025, which means that GM's previously set goal of selling 400000 electric vehicles next year will not be achieved. But at the same time, this move will delay GM's $1.5 billion capital expenditure in 2024 until 2025.
On the same day that General Motors released its third quarter report, the strike escalated again, and General Motors was the primary target. A large-scale strike occurred at General Motors' assembly plant in Arlington, Texas, involving approximately 5000 workers. This factory is General Motors' largest and most profitable, responsible for producing its core products, such as large SUV models such as the Chevrolet Tahoe, GMC Yukon, and Cadillac Escalade.
UAW Chairman Shawn Fain stated last Friday that the union is close to reaching an agreement with three automakers, but still& Quot; Need to strive for more& Quot;. Insiders revealed earlier this month that the three giants are currently proposing a 23% salary increase, but the union hopes for a 25% salary increase.
Since September, the total number of strikes has reached approximately 45000, accounting for approximately 31% of the total UAW members. In addition, approximately 7000 people were forced to lose their jobs as a result. On Monday, Strantis also experienced a large-scale strike at its factory in Michigan, involving 6800 employees. The factory produces the best-selling model of the Strantis, the Ram 1500 pickup truck. It is reported that Strantis' proposed salary and other growth plans are the worst among the three giants.
UAW has recently launched frequent strikes against profit engine factories under the three major automakers, confirming what Finn called a "new stage" in negotiations with automakers. He previously stated that to achieve the goal, more factories may need to join the strike and pressure the company to make concessions.
Market attention to the financial reports of two other car companies and the impact of ongoing strikes
Later this week, Ford Motor (F.US) will release its financial report on October 26th, following closely General Motors. Analysts believe that if the financial forecast is optimistic, UAW may expand the strike to strive for better benefits. If the financial forecast is pessimistic about the impact of the strike, it may scare investors away and cause stock prices to fall again. Affected by the strike, Ford and General Motors' stock prices have fallen by more than 6% and 10% respectively so far in October.
JPMorgan Chase analysts estimate that the UAW strike will reduce Ford's third quarter earnings before interest and tax (EBIT) by approximately $145 million. If the strike deadlock is not resolved, the impact on the fourth quarter EBIT is more likely to be as high as $517 million.
The market is also very concerned about signs of significant strategic changes for the other two car companies. Morgan Stanley analyst Adam Jonas predicts that "cutting capital expenditures, delaying electric vehicle targets, increasing cost sharing, and other changes in the company's investment portfolio may all occur.
Previously, Ford Motor stated that it will temporarily reduce one of the three shifts at its Michigan factory, which mainly produces electric F-150 lightning pickup trucks, which will affect approximately 700 jobs. Ford stated that the layoffs were not related to the UAW strike and pointed out supply chain issues. Ford previously reported a decrease in sales of F-150 electric vehicles in the third quarter compared to the same period last year, accounting for approximately 2% of Ford's total F-series sales.
STLA. US announced temporary layoffs of 700 employees last Friday, stating that the additional layoffs are due to the ongoing strike at the Toledo assembly center. On Tuesday, the company announced that it would lay off an additional 525 employees due to the impact of the strike. At this point, its factories in three states in the United States currently have 2045 employees temporarily laid off.
The market is also concerned about the impact of the ongoing and escalating strikes on the entire automotive industry, consumers, and inflation. Jeff Klingelhofer, Joint Investment Director and Managing Director of Shangbo Investment Management, told First Financial reporters, "Raising wages is an inevitable result of the strike. This is important because it will show people the stickiness of inflation and broader emotional factors in labor dynamics. Inflation is more stubborn than the market thinks. The Federal Reserve also knows this, so it will be less willing to initiate interest rate cuts