GM can handle short strike

Analysts call brief walkout costly, but manageable

Christine Tierney and Eric Morath / The Detroit News

General Motors Corp.'s stock dipped slightly Monday as most investors and auto industry experts bet the United Auto Workers' strike would be short-lived and would not derail the automaker's recovery.

"It's unimaginable that it would be a long strike -- absolutely unimaginable," said David Cole, chairman of the Center for Automotive Research in Ann Arbor. "The stakes are so high."

Although a strike would be costly, industry experts say GM could weather a one- or two-week production halt without too much damage to its balance sheet.

In addition, a recent slowdown in demand for cars and trucks means GM's inventory will last longer. GM already planned to cut production 10 percent in the fourth quarter.

Its shares closed down 20 cents at $34.74 on the New York Stock Exchange.

"Initially the strike won't rattle investors too deeply as Wall Street is pleased to see GM taking a hard line stand when it comes to retiree health cost and the company's ability to manage its employment levels," said Joe Phillippi, principal of AutoTrends Consulting Inc. in Short Hills, N.J.

"They need to close the wage gap with the Asian Big Three," he said, referring to Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co.

Compared with Detroit's automakers, the leading Japanese automakers have a cost-advantage amounting to about $1,000 per vehicle, according to one Detroit executive involved in the talks. The gap partly reflects their smaller U.S. retiree base and lower health care costs.

Analysts view GM's tough bargaining as a calculated gamble that is likely to pay off. They expect the strike to be brief, as a longer stoppage would be extremely damaging to both the U.S. automaker and the UAW.

Analyst Brad Rubin at investment firm BNP-Paribas estimates a month-long strike would cost GM $4 billion and would likely tip the automaker into bankruptcy.

"I can't imagine the UAW would be stupid enough to allow that to happen. The retirees would be at risk, at that point, of losing everything," Rubin said.

GM has enough cash to get through a short strike, said Bob Schulz, managing director at Standard & Poor's Ratings Services. It left its "B" rating on the company's bonds unchanged.

Moody's Investors Service also left its ratings on GM debt unchanged and said in a statement that it believed GM had enough cash to cover its requirements even if a strike lasted 30 days.

S&P estimates that GM has $32 billion in cash and marketable assets.

"We see no immediate impact from the strike," Schulz said. "If it goes beyond a fairly brief period of time, there is a more serious impact."

A long strike would eat into the cash reserves GM needs for its turnaround.

An extended strike would also hurt its sales and threaten its recovery. GM's inventory level represents a three-month supply, compared with the industry's average closer to two months.

Those supplies are large enough to last through a short strike, said Tom Libby, senior director of industry analyst at Power Information Network, a division of J.D. Power and Associates.

But supplies of some of its popular new crossovers, such as the Buick Enclave and GMC Acadia, might run short. Enclaves spend around two weeks on dealer lots, one of the industry's fastest turnover rates.

GM told dealers of the strike in a brief conference call with its national dealer council, but gave no details, according to Joe Serra, president of Serra Automotive, who was on the call.

J.D. Power's Libby predicted a short strike. "If it's a few days, I don't think there will be any major impact to the company. But the strike happening at all was a surprise to many here."

As analysts calculate the strike impact, they will have to consider other developments and responses to this high-profile dispute.

On Monday, the Teamsters union said its members and drivers would support the UAW in its fight with GM.

"Teamsters will not cross or work behind a UAW picket line," the union said in a statement.

But compared with previous labor disputes, GM has a stronger hand now.

"What you have had at GM is the creation -- belatedly -- of a real global company, and global companies don't have to build all their cars in one location. They don't have to build all their cars sold in the United States in the United States," said analyst Maryann Keller of Maryann Keller & Associates.

"These are very different companies now. That presents a newer challenge to the UAW in their perennial search for job security."

At the same time, the UAW will not want to be perceived as being "hard line, difficult and entrenched," she said. The union is eager to organize foreign-owned auto factories, mostly in the South, and attract members from other industries.

"They have a motivation here to be seen as a rational partner."

You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com.