September 16, 2019 / 9:36 PM / a month ago

Breakingviews - GM strike is minor fender-bender, not car crash

The GM logo is seen at the General Motors Warren Transmission Operations Plant in Warren, Michigan October 26, 2015. REUTERS/Rebecca Cook

NEW YORK (Reuters Breakingviews) - The strike at General Motors’ U.S. plants should have very little staying power. That’s not because members of the United Auto Workers don’t have their hearts in it, or because the carmaker’s executives have little at stake. It’s simply because the two sides are far too close to a deal for it to be worth continuing for long.

The union hasn’t called a strike at GM since 2007. And in the bad old days, such action could easily spiral out of control. A strike in Flint, Michigan, in 1998 lasted 54 days and cost GM more than $2 billion, for example.

Times have changed since then, though, and neither side is being unreasonable in their demands for the four-year contract currently under negotiation. The UAW wants to secure better wages and profit-sharing, restrict increases in healthcare costs, and find new uses for two factories GM intends to close.

For its part, the $52 billion carmaker doesn’t want to increase its fixed costs, especially amidst rising concerns about a slowdown, and even a recession. But the company run by Mary Barra has already shown that it’s willing to compromise. On Saturday, after the current UAW contract dating back to 2015 expired, GM offered to scrap most increases in healthcare charges, boost wages and bonuses, and even consider building new products in the two doomed plants.

Had these proposals come earlier, UAW chief negotiator Terry Dittes told GM, it could have averted the industrial action that began just before midnight on Monday. That makes the decision to down tools look almost entirely symbolic – though it may also serve to draw some attention from a federal corruption probe into practices at the union.

Shareholders are sensibly pricing in at worst a fender-bender rather than a car crash. With GM’s shares down about 5%, that’s a modest hit of just over a week’s worth of profit based on a $58 million-a-day run-rate for EBIT – the average forecast by analysts at Credit Suisse, Evercore ISI and Citigroup – and assuming a valuation multiple of 5.5 times projected earnings after stripping out interest and taxes.

The only reason the strike should last even that long is if any of the negotiators rediscover their predecessors’ penchant for pigheadedness.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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