UAW-GM strike won't cause recession, but costs fall unevenly
Michigan isn't falling into a recession after a six-week national strike by more than 48,000 United Auto Workers members against General Motors Co., according to forecasters at the University of Michigan.
Thousands of UAW-GM employees nationally are returning to work for the first time Monday after the union on Friday ratified a tentative agreement with the Detroit automaker, ending the longest national strike against GM since 1970. Despite the 40-day walkout, the new contract over the next four years promises wage increases, lump-sum bonuses and record ratification payments that mostly will make up the picketers' wage losses.
But for the thousands of employees affected upstream at GM suppliers, they are returning to work after weeks without formal paychecks to jobs that typically pay less than their GM counterparts — effects of which will linger through the rest of the year, economists say.
"These bonuses will fall unevenly," said Patrick Anderson, CEO of East Lansing's Anderson Economic Group. "The range of effects is 'I didn't lose anything' to 'I didn't get a paycheck for six weeks, and I didn't get a settlement.' They'll take it on the chin."
Michigan's economic growth for 2019 is expected to slow to 1.4% in 2019 from 2.7% in 2018 following increasing trade tensions in the spring and summer, according to the University of Michigan's Research Seminar in Quantitative Economics. A strike extending into mid-October was estimated to have cut that figure by a tenth or more of a percentage point because of lost production, said Daniil Manaenkov, U.S. forecasting specialist for the seminar.
"It's significant, but it's not tipping Michigan into a recession," Manaenkov said. "The auto sector is large when compared to other sectors, and we are an auto-dependent state more than others, but that's a comparative statement. All the parts suppliers, metalwork and all the other parts and GM is a fraction of overall economic output."
Almost 18,000 UAW-GM employees were on strike in Michigan, more than any other state. Meanwhile, between Sept. 15 when the strike began and Oct. 19, Michigan's Unemployment Insurance Agency processed 9,000 claims from 95 employers believed to be as a result of the walkout, state spokeswoman Lynda Robinson said. The maximum a claimant can receive is $362 per week compared to the UAW's strike pay of $275 per week to which the union upped by $25 Oct. 12.
The strike has affected 17,000 hourly and salaried workers at 120 of GM's direct suppliers, according to the Original Equipment Suppliers Association, a trade organization. Nationally, unemployment claims from auto supplier employees are up, as well, to about 30,000. Although not all may be as a direct result of the work stoppage at GM, Manaenkov noted, the number of new claims has dropped since the automaker reached a deal with the union Oct. 16. Union leaders, however, decided to continue the picket lines through the contract's ratification.
Altogether, lost direct wages are estimated to be $989 million, the Anderson Economic Group estimates. Top-paid UAW-GM employees have lost $8,064 in wages from the strike, but they will receive an $11,000 ratification bonus to cover those losses.
The record ratification bonus was not why David Parnell Jr., who works at GM's Flint truck assembly plant, voted for the contract, noting it provides benefits to GM employees no matter their experience.
"But it helps," said Parnell, 46, of Detroit who has four children in college. "We went from paying bills on time to making arrangements on bills. It's been eye-opening."
Meanwhile, auto supplier workers are out on average $4,032, estimates the Anderson economic consulting firm, but there are no promised signing bonuses when they return to work.
"It’s definitely taking a chunk out of both the third and fourth quarter in Michigan," Anderson said. "It’s going to be something we will see through the holiday shopping season."
Sales tax revenue in Michigan wasn't affected significantly year-over-year in September, according to the House Fiscal Agency. A more than 17-point drop of the Michigan Retailer Association's index in September suggests negative activity in the sector with 52% of retailers recording declines. Many, however, responded to the survey before the strike at GM began.
Some affected auto supplier employees have found new jobs: Timothy Bax, who immediately was laid off from the assembly line building taillights for Chevrolet Camaros for The Woodbridge Group, found a job three and a half weeks into the strike as a tire technician.
"I had to do something," said Bax, 32, of Lansing who also is caring for two children. "My bills were piling up. I couldn't wait on them no more."
GM also likely will attempt to make up some of the lost production in attempts to restock dealer lots over the next month, Manaenkov said. That means suppliers could be working overtime, too. Still, "people being paid by the hour will probably have some cash shortage in the next few months," he said.
Michigan residents are poised to receive nearly half of the $11,000 bonuses for permanent employees and $4,500 payments for temporary workers with sums approaching $238 million, Anderson estimates. The company will pay the bonuses on their second payday; hourly UAW employees are paid weekly.
GM shareholders will bear much of the cost of these payouts, Anderson noted, with Michigan-resident shareholders absorbing $58 million of it. GM shares closed Friday down nearly 5.5% since Sept. 13 before the strike began.
GM itself is estimated to have lost $1.75 billion or more in profits from the work stoppage — which would decrease profit-sharing checks to UAW-GM employees by nearly $2,000. The strike's impact on GM should become clearer Tuesday morning when GM reports its third-quarter earnings.
The walkout came at a time when the manufacturing sector already was experiencing weakness. For a second consecutive month, overall U.S. factory production contracted for a second straight month in September, when it hit a 10-year low, according to the manufacturing index from the Institute for Supply Management.
The strike contributed to a 0.7% decline in the production of long-lasting goods in September and a drop in factory output overall, according to the Federal Reserve. That included a major 4.2% decline in autos made.
The strike stopped production at 30 GM plants across the country, suspended work at another two dozen company parts warehouses and distribution centers and led to nearly 10,000 furloughed non-UAW GM employees in Canada, Mexico and Ohio.
Third-quarter results from auto suppliers are providing a glimpse of the strike's impact on the auto sector. Lear Corp. CEO Ray Scott said the Southfield seating and electrical systems manufacturer has lost $525 million in revenue because of the six-week strike, forcing it to lower its profit guidance by more than $100 million for the year. GM accounts for 18% of its revenue.
French auto supplier Faurecia said Oct. 17 the strike against GM, which accounts for 6% of the company's revenue, for the final two weeks of the third quarter cut more than $25 million from its sales. Faurecia expected another $50 million in loses.
American Axle & Manufacturing Holdings Inc. reports its third-quarter results Friday. GM, its former parent company, accounts for 41% of revenue at the Detroit-based gear and axle maker.
The union now is taking the ratified contract at GM to set the pattern at Ford Motor Co. and Fiat Chrysler Automobiles NV, but that doesn't mean those companies also won't see a strike, experts said. GM's contract allows it to close three plants and a parts distribution center that will save it billions, but the other two automakers do not have the same over-capacity problem that GM had.
"The chances of a strike between the UAW and Ford and FCA are still significant," Manaenkov said. The union "didn't get everything that they wanted obviously. I'm not sure that the pattern bargaining is going to repeat itself. They may want a little more out of the other manufacturers."