Saturday, May 24, 2008

Price of strikes for GM: $2.8B

Walkouts at Axle, automaker plants also cost U.S. economy $8.2 billion.

Eric Morath / The Detroit News
The American Axle strike and separate walkouts this month at two General Motor Corp. plants will take $2.8 billion off the automaker's bottom line, and cost the U.S. economy $8.2 billion -- shaving nearly a percentage point off the gross domestic product, an economist said Friday.

The 87-day walkout against American Axle & Manufacturing Holdings Inc, which ended Thursday, cost GM 330,000 units of production, including 230,000 units in April and May, the automaker reported in a Security and Exchange Commission filing Friday. United Auto Workers strikes against GM plants near Lansing and Kansas City erased 33,000 production units in the second quarter.

The loss of that factory output and related fallout, represents a 0.9 percent decline in the country's GDP, said Mike Montgomery, an economist with Global Insight Inc.

GM is American Axle's largest customer. The walkout at five American Axle plants at least partially idled 30 GM factories and numerous supplier facilities due to parts shortages.

"The economic impact was even larger than we predicted because no one thought the strike would drag out as long as it did," Montgomery said. "We will see a bounce back effect, but it will be small compared to the losses associated with the strike."

Roughly half of the $8.2 billion that the economy lost since the American Axle strike began Feb. 26, will be made up in the coming months, Montgomery said. But that recovery is limited because GM said in the filing that it anticipates "only a portion of this lost production will be recovered, due to the current economic environment in the United States and to the market shift away from the types of vehicles that were impacted by the action at American Axle," mainly trucks and SUVs.

The automaker expects to fully replace production at the Lansing Delta Township plant, which makes hot selling crossovers, and the Fairfax plant in Kansas City, Kan., which builds the popular Chevrolet Malibu sedan. Those strikes cost GM $200 million.

The American Axle strike cost GM $2.6 billion -- including $1.8 billion this month and last.

In the same filing, the automaker revealed it paid $215 million to help broker a deal to end the Axle strike. Previously, GM had pledged $200 million to help fund buyouts, early retirements and buydowns to facilitate a settlement.

In addition to the payment, GM amended its 1994 purchase agreement with the Detroit-based supplier, to relieve American Axle of an estimated $40 million liability for retiree health care and insurance.

Under the new agreement, American Axle will not pay its portion of retirement health care and life insurance for GM retirees with service credit at the supplier, an American Axle filing said Friday. That cost will be paid by GM.

American Axle will ramp up production next week, with some of the 3,650 striking workers returning to their jobs Tuesday.

Those workers, and others at impacted GM and supplier plants, should help the Michigan and local economies where the plants are, but those same areas will have to adjust to the next generation of autoworkers making far less than current employees, Comerica Bank economist Dana Johnson said.

The typical American Axle worker in Detroit will take a $10 per hour pay cut. In the contract the UAW struck with automakers last fall, new hires will make half the wage of veteran workers.

"The trend will ripple through the overall Michigan economy," Johnson said. "Autoworkers set pay standard, now with the auto sector readjusting, other sectors will adjust too, giving consumers less income to spend."

Accepting the lower wages rates, however, should stabilize the area's manufacturing base, he said.

"As painful as it is, these are necessary adjustments that will create a more competitive auto industry in Michigan," Johnson said.

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