Strikes to cost General Motors $2.2bn

General Motors estimated on Friday that recent labour disruptions at one of its key suppliers and at several of its own plants will chop about $2.2bn from second-quarter pre-tax earnings.

• General Motors estimated on Friday that recent labour disruptions at one of its key suppliers and at several of its own plants will chop about $2.2bn from second-quarter pre-tax earnings.
• The Detroit-based company also disclosed that the stoppages had cost it 363,000 vehicles in lost production since February, increasing the likelihood that it will be overtaken by Toyota as the world’s biggest carmaker this year.
• The lost output, only part of which will be recovered, makes up almost 4 per cent of GM’s annual global production.
• The announcement underlines rising financial pressures on the Detroit automotive industry.
• Ford Motor backed away on Thursday from an earlier pledge to return to profitability in 2009, blaming slowing demand, rising raw material costs and an accelerating shift from big sport utility vehicles and pick-up trucks to less profitable cars and crossover vehicles.
• GM and Ford shares both lost more than 4 per cent in early trading Friday. GM’s shares have more than halved since last autumn.
• Ford was trading at $6.84, well below the current $8.50 tender offer by Kirk Kerkorian, the reclusive billionaire. The offer for 20m shares expires on June 9.
• GM, which posted a first-quarter loss of $589m, said that an 11-week strike at American Axle would cost it $1.8bn in the second quarter. The strike, which was settled last weekend, cost $800m in the first three months of the year.
• Chris Ceraso, analyst at Credit Suisse, now estimates GM’s second-quarter loss at close to $1.5bn.
• GM said: “Only a portion of this lost production will be recovered due to the current economic environment in the US and to the market shift away from the types of vehicles that were impacted by the action at American Axle”.
• Components supplied by American Axle are used mainly in SUVs and pick-up trucks.
• Announcing Ford’s more sombre profit projection and production cuts on Thursday, its chief executive Alan Mulally said that “we saw a real change in the industry demand in pick-ups and SUVs in the first two weeks of May.
• “It seems to us we reached a tipping point.”
• He added that the shift to smaller vehicles appeared to be “structural in nature” rather than a short-term reaction to soaring petrol prices.
• GM said that work stoppages at its own plants would cost $200m in the current quarter.
• The disruptions were widely seen as a thinly disguised effort by the United Auto Workers union to step up pressure over the American Axle dispute.
• GM has also agreed to contribute $215m to help finance buy-outs and other benefits as part of the American Axle settlement.