General Motors Gives Guidance, Strike Cost GM $3 Billion in Lost Earnings
General Motors Co. lowered its full-year profit outlook, saying the 40-day strike at its U.S. factories will cost close to $3 billion in lost earnings and wiped out nearly all its free cash flow for the year. GM’s third-quarter pretax profit fell 6%, to $3.0 billion. Lost production and other costs related to the United Auto Workers strike which halted production for the final two weeks of the quarter hurt profits by $1 billion.
The auto maker’s pretax adjusted earnings per share for the third quarter were $1.72 versus the $1.31 average estimate of Wall Street analysts. Net income fell 8%, to $2.3 billion. Revenue slipped 1%, to $35.5 billion. Shares of GM rose around 5% in morning trading Tuesday.
The largest U.S. auto maker by sales now expects pretax adjusted earnings per share of $4.50 to $4.80, down from an earlier forecast of $6.50 to $7 for full-year 2019. Free cash flow is expected to be less than $1 billion, down from a previous estimate of $4.5 billion to $6 billion.
GM finance chief Dhivya Suryadevara said the company lost output of about 300,000 vehicles from the strike, and will try to make up some ground in the coming months. She said the new UAW contract will add incremental costs but should allow GM to compete better in it U.S. factory operations.
“We’re retaining flexibility as it relates to adjusting the workforce up or down based on industry [sales] levels,” Ms. Suryadevara told reporters.
The new four-year contract promises higher wages and bonuses and accelerates the timetable it takes for new hires to reach top pay and preserves employees’ out-of-pocket health-care costs at a relatively low level. The union also agreed to allow GM to close three U.S. factories which should help GM boost efficiency and lower operating costs, Ms. Suryadevara said.
GM said it plans a broad U.S. restructuring, which included the plant closures, along with layoffs of salaried workers and will result in cost savings next year of $4 billion to $4.5 billion, compared with a previous forecast of $4.5 billion.
Despite the hit from the strike, GM managed to boost its pretax profit margin in North America—its most profitable region—to 10.8%, from 10.2% a year earlier. The company cited strong pickup-truck sales and cost cuts, offset by the strike and higher warranty costs.
Results from China continued to weaken amid a broad downturn in the car market there. GM’s third-quarter income from China fell 42%, to $282 million.