Lengthy UAW strike at GM to cost US$1.5 billion: Credit Suisse

Lengthy UAW strike at GM to cost US$1.5 billion: Credit Suisse

REUTERS: An ongoing workers' strike at General Motors Co could cost the automaker about US$1.5 billion, brokerage Credit Suisse said on Friday, throwing the U.S. automaker's cost reduction plans off the track and forcing key suppliers to cut their 2019 outlook.

The brokerage has assumed the strike by the United Auto Workers (UAW) union, currently in its 26-day, to last until Oct. 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, the brokerage said, with the impact spreading to some of GM's facilities in Mexico and Canada that receive parts from its U.S. factories.

"While investors may look through the one-time impacts...the strike reminds us of the challenge of investing in OEMs at this point in the cycle," analyst Dan Levy wrote in a note.

The brokerage said GM may now have to revise its target of US$4.5 billion in cost savings through 2020, announced last year, as production curtailments and labor-related cost reductions may not happen as fast as the company had expected.

"We assume just under US$900 million of reduced costs or 20per cent of the original (target)," Levy said.

Credit Suisse said the strike will hurt suppliers, including American Axle , Aptiv Plc , Lear Corp , Delphi Technologies , and Dana Inc , whose exposure to GM varies between 5per cent and 18per cent, with American Axle at 40per cent.

Last week, Canadian auto parts maker Linamar Corp estimated a profit impact of up to CUS$1 million per day due to a fall in orders from its customer General Motors.

Credit Suisse lowered its 2019 earnings per share estimate for GM by 83 cents to US$6.11, below the Wall Street consensus of US$6.56, according to IBES data from Refinitiv, as the No.1 automaker is also at the risk of losing market share to smaller rivals such as Ford Motor .

The brokerage has cut its price target on GM's stock to US$46 from US$50, while reaffirming 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 US$48, representing an upside of more than 38per cent to Thursday's close.

(Reporting by Ankit Ajmera in Bengaluru; Editing by Shailesh Kuber)

Source: Reuters

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