UAW strike at American Axles shuts GM plant in Detroit

29 March 2008

Mumbai: A strike that has been going on for a little over a month at a auto parts supplier will now force General Motors shut down a car plant in Detroit, confirming analysts' worst fears about General Motors' earnings.

The strike by a United Auto Workers union at Detroit-based American Axle & Manufacturing company was in fact viewed by analysts as somewhat welcome, as it helped trim inventory levels at General Motors. According to industry analysts, a short strike at American Axle would allow GM an opportunity for better inventory management, as it would be able to liquidate inventories of unsold trucks and SUVs for the time the plants idle.

GM's pickup truck inventory had ballooned in January, and this could well be the chance for the company to shrink those stocks, given the pressure faced by US vehicle sales. However, they had caution that a prolonged strike could prove costly. (See: GM truck plant idle as American Axle workers strike) This prolonged outage of work at American Axle has started to sink its teeth into analyst forecasts about General Motors finances.

The strike at American Axle has led to 28 GM plants becoming idle or curtail production due to a lack of parts. The strike, which started on 26 February, has ensured that at least one more GM facility, a factory making the Cadillac DTS and Buick Lucerne sedans just outside of Detroit, close production. Other idling plants manufacture trucks and sports utility vehicles (SUVs) such as the Chevrolet Silverado and the Hummer H3.

Car manufacturers follow the practice of booking revenues as soon as a vehicle rolls off the assembly line, and heads to a dealership, and it is this practice that is directly impacting GM's top line. Industry sources predict that by last week, GM had lost 80,000 vehicles' worth of production because of the UAW strike at American Axle.

Analysts have begun to drop profit expectations as a result of the strike, and have started to boost their quarterly loss predictions for GM, which are estimated to increase from around $600 million to around $1.4 billion, with estimates indicating that the strike is bleeding GM by around $890 million every month.