An ongoing strike of workers at General Motors could cost the automaker about $1.5 billion, brokerage Credit Suisse stated on Friday, moving the U.S. automaker’s cost reduction plans off the track and forcing key providers to slash their 2019 outlook.
The brokerage has assumed the strike by the United Auto Workers (UAW) union, presently in its 26-day, to last until October 21.
GM, which probably lost production of about 100,000 vehicles in the third quarter, is at the danger of losing 170,000 more vehicles in the current quarter, the brokerage stated, with the impact spreading to some of automaker’s facilities in Mexico and Canada that receive parts from its U.S. factories.
“While investors may look through the one-time impacts…the strike reminds us of the challenge of investing in OEMs at this point in the cycle,” expert Dan Levy wrote in a note.
The brokerage stated GM may now have to remodify its target of $4.5 billion in cost savings through 2020, declared last year, as production curtailments and labor-related cost decreases may not happen as fast as the company had expected.
“We assume just under $900 million of reduced costs or 20% of the original (target),” Levy stated.
Credit Suisse stated the strike will harm providers, consisting of American Axle, Aptiv Plc, Lear, Delphi Technologies, and Dana Inc, whose exposure to GM varies between 5% and 18%, with American Axle at 40%.
Last week, Canadian auto parts maker Linamar estimated a profit impact of up to C$1 million every day because of a fall in orders from its customer General Motors.
Credit Suisse reduced its 2019 earnings per share estimate for the automaker by 83 cents to $6.11, below the Wall Street consensus of $6.56, as per IBES data from Refinitiv, as the automaker is also at the danger of losing market share to smaller competitors.
The brokerage has slashed its price target on GM’s stock to $46 from $50, while reassuring its “outperform” rating.