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The first two weeks of the strike by the United Auto Workers cost General Motors Co. $1 billion in lost earnings, and overall losses from the six-week walkout will rise to nearly $3 billion for the year, the automaker said Tuesday.

GM production resumed this week after the longest strike against the automaker since 1970 ended on Friday. While the automaker won't be able to make up all of the lost production and dollars this year, company leaders believe the new four-year contract with the UAW allows the company to remain competitive and still gives employees a fair share of the profits.

"From the outset, our goal was to reach an agreement that works for our shareholders, our employees, and our company as we confront the reality of a rapidly transforming industry," GM CEO Mary Barra said on a call with investors Tuesday after the company released third-quarter earnings. "Our contract does the right thing for our employees without comprising competitiveness or flexibility."

As a result of the strike, GM cut back its full-year profit outlook to earnings per share of between $4.50 to $4.80. In January, the automaker forecast earnings per share between $6.50 and $7.

GM also said its free cash-flow was severely trimmed to a $1 billion or less because of the strike; in January, it had put the estimate at up to $6 billion.

Mainstay Capital Management LLC CEO David Kudla said the immediate loss in cash flow due to the strike and the rising annual labor cost were both significant.

"Despite the work stoppage, GM had a very strong quarter, exceeding on earnings and boosting pre-tax profit margins in the crucial North American market," Kudla said in a statement. "Most importantly, GM assured investors that, with the now ratified UAW agreement, the company was able to retain flexibility to scale operations up or down depending on sales or economic conditions." 

It will be difficult to make up the lost production especially on full-size trucks because truck plants already are running at full capacity with three shifts. Barra said "most" of the production lost during the strike will not be recovered in 2019 because of capacity restraints.

GM had healthy levels of inventory during the strike. At the beginning of October, two weeks into the strike, the automaker GM had 81 days’ supply of total car, truck and SUVs, according to Cox Automotive. The overall industry had only 66 days of stock.

"As the strike continued, our teams worked tirelessly to ensure we could ship as many vehicles as possible to our dealers," Barra said. "However with no additional vehicles in the pipeline for many weeks, our dealer inventories will be temporarily leaner than we'd like."

The strike cost 52 cents per share in the third quarter even though it only covered two weeks in that quarter. GM expects the overall impact of the strike to cost about $2 per share for the year. That amounts to a $2.9 billion loss.

Credit Suisse analysts Dan Levy and Robert Moon said in a note that GM had a solid third-quarter with a much "sharper-than-expected guide down for fourth-quarter," with the strike effectively wiping away all of GM’s free cash flow in 2019.

"Simply, the strike did not significantly alter GM’s steady state financial profile," Levy and Moon said in the note. "Accordingly, investors very well may look through the strike-impacted results, and instead focus on the maintained earnings power."

Shares of the automaker rose 4.3% in trading Tuesday to $38.21.

The UAW called a national strike against the automaker on Sept. 16. The strike, spread across 55 facilities in 19 states, lasted 40 days. It ended Oct. 25 after UAW members approved by the contract by 57%. 

GM saw an about 9% year-over-year decrease in earnings of $2.3 billion on revenue of $35.5 billion that declined by 0.9% year-over-year during the third quarter of July 1-Sept. 30. 

A roughly 7% increase in profits before taxes in North America was a result of strong heavy-duty pickup and crossover sales. The profit in North America was partially offset by the strike. GM dealers sold 738,638 vehicles in the third quarter, up 3% from the previous year. 

"If you look at our key operating segments, primarily North America, it was solid and that was driven by the strength in our crossovers and the continued strength in the launch of our full-size pickups," GM Chief Financial Officer Dhivya Suryadevara said. "It's important to look at what the underlying business looks like and the underlying business was strong this quarter."

GM International reported a $65 million loss. The industry remains volatile in China where GM sales fell nearly 11% in the quarter.

GM reported adjusted earnings per share of $1.72, down 8% from the previous year, but beating analyst expectations. Its profit margin dipped slightly year over year to 8.4% from 8.8%. Adjusting for the impact of the strike, the earnings per share would have been $2.24, which would have been an all-time quarterly record, Suryadevara said.

From GM's standpoint, Suryadevara said the new contract with the UAW will allow the company to improve capacity utilization and retain flexibility by allowing GM to adjust "the workforce up or down based on industry levels. GM said it will be able to offset costs of the contract through productivity and efficiency efforts.

The new four-year pact with the UAW will give employees a 3% base-wage increases in the second and fourth years of the contract. It will pay 4% lump-sum bonuses in the first and third years and comes with a record profit-sharing bonus of $11,000. Employees will get the lump-sum and ratification bonuses with their Nov. 8 checks.

Union members also get to retain their health care coverage at the same level they've been paying: 3%. 

Temporary workers — 7% of GM's hourly workforce — will become permanent employees after three years starting Jan. 6. Once base-wage increases are paid, top production pay for eligible permanent employees would rise to $32.32 by the end of the four-year contract.

"While the cost of GM's labor will increase as a result of the new contract, they expect to offset these cost increases by reducing the quantity of labor that they will utilize through productivity gains," said Colin Lightbody, former Fiat Chrysler Automobiles executive and president of HR and Labor Guru Inc., a consulting firm.

The new contract allows GM to close four facilities: Warren Transmission in southeast Michigan; Lordstown Assembly in northeast Ohio; a parts distribution center in Fontana, California; and Baltimore Operations in Maryland.

Because GM plans to keep open its Detroit-Hamtramck assembly plant to build electric trucks, the automaker adjusted its year-end 2020 cost savings target to between $4 billion and $4.5 billion, reflecting a $3 billion investment in the plant. GM originally said it would save $4.5 billion through plant closures.

GM is preparing for a full year of heavy-duty truck production in 2020, and product launches including the Chevrolet Corvette, Buick Encore GX and Chevrolet Trailblazer.

"In 2020 we do think that China will remain volatile, South America will remain volatile," Suryadevara said. "Here in the United States, with the economic growth moderating ... we're still planning for a lower industry, but still a healthy industry in 2020."

Ford Motor Co. announced last week that it made $425 million in the third quarter of 2019. Adjusting for roughly $1.5 billion in one-time charges associated with its global restructuring and the creation of a new joint venture in India, the automaker would have made $1.8 billion last quarter.

Fiat Chrysler will release its earnings Thursday.

khall@detroitnews.com

Twitter:@bykaleahall

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