GM strike dings supplier Nemak in Q3

Mexican auto supplier Nemak said Friday that the monthlong UAW strike against General Motors dinged its third-quarter parts production and revenues.

The strike cut production of 100,000 engine blocks for GM in the quarter and about 400,000 overall as the work stoppage bled into October.

Nemak supplies aluminum components for powertrain and body structure applications globally.

The UAW strike over pay and job security could have a major cost on the supplier amid production halts in North America, CEO Armando Tamez said on a conference call Friday. The supplier suspended production and shipments to GM from the start of the strike Sept. 16, Tamez said.

In addition to the loss in production, Nemak leaders said, the strike could ultimately cost the company $8 million to $12 million.

Nemak said in a statement that third-quarter earnings before interest, taxes and other adjustments fell 13 percent to $139 million.

Nemak's total revenue for the quarter was $963 million, down 16 percent from $1.15 billion over the same period in 2018, the company said.

In North America, revenue was $555 million, down 17 percent from $666 million in the same period last year, "mostly related to lower volume and aluminum prices," the company said in the statement.

North American troubles

Nemak said its total production volume for the third quarter decreased 14 percent from the same period in 2018.

The supplier said in the statement that volume in North America "was down mainly due to a less favorable product mix, lower exports to China, and less production among Detroit 3 customers."

The strike has had an impact on several other major suppliers, including Adient and Faurecia. GM and the UAW have reached a tentative deal for a new four-year labor contract, but ratification could take another week, and workers remain on strike.

"We're ready. We have all our production plants ready and available to start," Tamez said. "We're expecting that to happen within the next few days."

Tamez said that once the contract is ratified, Nemak and GM are looking to "start production and work overtime to try to recover as much as possible during this year and the first quarter of next year."

Other labor issues

The supplier also faced challenges as a result of its own workers' labor negotiations in the third quarter. 

Members of Unifor Local 200 walked off the job Labor Day to protest Nemak's plan to close its Windsor, Ont., plant. Nemak announced the pending closure in July, citing the plant’s inefficiencies associated with its small size, and its plans to expand elsewhere.

Union members were on strike for two weeks at the factory before agreeing to framework conditions such as a timeline for negotiations regarding plans to close the plant in mid-2020, and an expedited arbitration process if a negotiated resolution proved unsuccessful.

“In the third quarter, we also saw effects linked to our plans to close our manufacturing operations in Windsor, Canada. This included previously anticipated severance costs, as well as lost volume and productivity due to the Unifor labor blockade of the plant in September,” Tamez said. 

Tamez said Nemak has initiated a negotiation process with Unifor to come to “a definite solution on next steps for winding down this operation.”   

On the plus side, Nemak said it won new contracts valued at $240 million in annual revenue, "primarily to produce cylinder heads, engine blocks, and EV components."

Nemak, of Garcia, Mexico, ranked No. 52 on the Automotive News list of the top 100 global suppliers, with worldwide parts sales to automakers of $4.7 billion in its 2018 fiscal year.