GM Q3 earnings fall 8.7%; strike to cost nearly $3 billion

DETROIT — General Motors on Tuesday said its third-quarter net income fell 8.7 percent from a year earlier to $2.3 billion, including a $1 billion hit from the first two weeks of the UAW's strike.

GM said it expects the 40-day strike, which ended last Friday after workers ratified a new four-year contract, to reduce 2019 earnings by about $2 per share, or nearly $3 billion. The last four weeks of the strike were in the fourth quarter.

GM also lowered its full-year guidance range by roughly the cost of the strike, which cut production by 300,000 units, CFO Dhivya Suryadevara told reporters.

“If you look at our key operating segments, primarily North America, [the quarter] was solid,” Suryadevara said. “Taking a step back, it's important to look at what the underlying business looks like, and the underlying business was strong this quarter."

GM shares rose 4.3 percent to close at $38.21 on Tuesday.

Adjusted earnings before interest and taxes decreased 5.9 percent from a year earlier to $3 billion. Revenue declined 0.9 percent to $35.5 billion, and its profit margin slipped 0.4 of a percentage point to 8.4 percent.

In North America, GM earned $3 billion, up 7 percent from a year earlier. It lost $65 million in its international regions, vs. a $139 million profit a year ago.

GM Financial's profit rose 43 percent to $711 million.

In its new contract with the UAW, GM committed to paying higher labor costs through wage increases, lump sum payments and other bonuses. The automaker also pledged to invest $7.7 billion in U.S. plants and $1.3 billion in joint ventures outside of the national agreement.

About a third of the total investment will go toward Detroit-Hamtramck Assembly, which was slated to close in January. The plant will build electric trucks, vans and battery modules.

The new labor contract “preserves our competitiveness, manufacturing flexibility and balance sheet strength without compromising earnings power,” Suryadevara told investors on GM’s earnings call Tuesday. “We have maintained the mix of our North American manufacturing footprint, maintained our ability to adjust our workforce in response to changing industry levels, protected the balance sheet with no increase to defined benefit pension obligations or increased obligations to retirees.”

Despite the cost of the contract, the agreement won’t put GM at a disadvantage during a downturn, she added. The automaker would remain profitable even if U.S. Industry sales fell as low as 10-11 million, she said. The only time sales have been that low since 1982 was 2009, when the market plunged to 10.4 million vehicles.

GM will cut costs by shutting down Warren Transmission in Michigan and Baltimore Operations in Maryland. And it stands to gain a profit by selling the Lordstown Complex in Ohio and the jointly owned UAW-GM Center for Human Resources in Detroit.

GM’s U.S. plants returned to their normal production schedules Monday. “We’ll continue getting those units out as expeditiously as we can,” Suryadevara said. “From a full-size truck perspective, the ability to make up additional units beyond what we are already making will be limited."

The automaker had ample inventory before the strike, but GM will be “running lean for a while” until it ramps up SUV sales in 2020, she said.

In the third quarter, GM’s U.S. sales rose 6 percent to 739,000 vehicles.Chevrolet Silverado 1500 sales rose 18 percent, and GMC Sierra 1500 sales rose 38 percent, compared with the same period in 2018. Deliveries of the heavy-duty crew-cab versions increased 19 percent, while production of other cab configurations was still ramping up. 

In China, vehicle sales fell nearly 11 percent. GM was coping with segment shifts and lower demand for outgoing models, the statement said, though Cadillac sales in China rose 11 percent.