GM Warns of US$2-bil Loss from Strikes in Q2; Seeks Volt Tax Break

GM has reported that its second-quarter financial result will be subject to US$2 billion of losses, prior to taxes, as a result of the strike action which has affected some of its own plants and one of its principal suppliers, American Axle, according to an Associated Press (AP) report. GM has put a figure of 230,000 units on the production output that the company has lost as a result of the American Axle strike action. The dispute has had a major impact on the company's production of large sports utility vehicles (SUVs) and pick-ups. GM has incurred further lost production of 33,000 units as a result of stoppages at its own plants.

In a filing to the U.S. Securities and Exchange Commission, GM said: "We anticipate 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." GM said the American Axle strike was expected to have the biggest effect by far, costing it US$1.8 billion in the second quarter before taxes. GM previously said it lost US$800 million in the first quarter and produced 100,000 fewer vehicles in that period because of the American Axle strike. GM also reported in Friday's filing to the stock exchange that it had injected US$215 million in order to try and resolve the dispute. As a result American Axle said Friday it expects production to resume next week after United Auto Workers members overwhelmingly approved a new contract that contains steep pay cuts and other concessions. "This new contract provides AAM and its UAW-represented work force the opportunity to transition through a most difficult period of structural change in the domestic automotive industry," American Axle Chairman and CEO Richard Dauch said in a statement.

Meanwhile, GM is preparing to bring its plug-in hybrid Volt model to the market in 2010. However, the high technology content of the vehicle means that the model may have a list price of close to US$40,000, according to an Automotive News report. This figure is around 40% higher than rivals like the Toyota Prius and Toyota Camry hybrid that are currently on sale in the U.S. market. As a result GM is lobbying Congress to create tax credits benefiting "extended-range electric vehicles" such as the plug-in Volt, said GM spokesman Greg Martin. He added: "We need to make sure the legislative language does include extended-range electric vehicles." The Volt will be powered by an electric motor which runs off lithium ion batteries, while a small gasoline engine will provide extended range and recharge the batteries. The plug-in technology means the car's batteries will be rechargeable. It is reported that GM is looking to secure tax breaks which would see around US$7,000 knocked off its initial list price.

Outlook and Implications

GM could have done without the most recent round of strike action that has spread through American Axle and halted production at a number of the company's key production locations. The company can ill-afford the major financial loss that has been sustained as a result of the stoppages. GM slipped after reporting a 12% downturn in revenue for 2007 to US$181 billion, thanks to lower vehicle sales primarily in North America. Revenue was down for 2007 and does not look set to improve much for 2008 either, given the dramatic swing now under way in the U.S. market. The full year should see some return to growth towards the end of the second half, but overall numbers are going to be down for revenue and sales in 2008 due to the recession and failing consumer confidence levels.

However, despite the highly significant financial losses incurred by the strike, its affects will not be as keenly felt as they might have been in the past. As a result of softening demand for large trucks and SUVs due to high fuel prices GM is likely to have cut production levels. However, the strikes have also affected other areas of GM's production capability that are growing in strategic importance. Facilities include the Fairfax assembly plant in Kansas City (see United States: 22 May 2008: GM Reaches Tentative Agreement with UAW at Striking Kansas, U.S. Plant), and the Delta Township plant near Lansing, Michigan, where production resumed Monday. The Fairfax plant makes the strong selling Chevrolet Malibu as well as the Saturn Aura. The Delta Township plant makes the Buick Enclave, Saturn Outlook, and GMC Acadia, which are popular cross utility vehicles (CUV). In the stock exchange filing GM said: "We plan to recover the lost production due to the impact of the local strikes over the remainder of this year."

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