GM plants in Mexico, Canada still open as UAW strike drags on, underscoring division on outsourcing


United Auto Workers members on strike picket outside General Motors’ Detroit-Hamtramck Assembly plant on Sept. 18, 2019 in Detroit.

Michael Wayland / CNBC

DETROIT – The United Auto Workers’ strike against General Motors, now in its 23rd day, has brought the majority of the automaker’s North American production to a standstill and prompted it to furlough more than 10,000 of its non-UAW employees.

The only North American assembly plants still operating for the Detroit automaker are the CAMI Assembly plant in Canada and two facilities in Mexico where GM is the country’s largest producer of vehicles. The plants, specifically Ramos Arizpe and San Luis Potosi in Mexico, represent one of the union’s biggest problems with GM more than with Ford Motor or Fiat Chrysler: outsourcing.

“GM has been producing in Mexico since the 1920s. This isn’t a new phenomenon but it is one that has become much more contentious in the last couple years,” said Kristin Dziczek, vice president of Industry, Labor & Economics at the Center for Automotive Research.

Heading into this year’s talks with the Big Three Detroit automakers, the union made manufacturing commitments to domestic plants a priority, specifically large assembly operations for GM in Michigan and Ohio that remain potentially slated for closure.

“I’m sorry to say that GM has the fastest-shrinking footprint here at home in these United States of America, and speaking on behalf of our brothers and sisters, we will not leave no stone unturned,” UAW President Gary Jones said during the opening of the negotiations in July. “We will fight to keep GM plants open and allocate more products here on American soil.”

The automaker’s commitment to future products for domestic plants was one of the major impasses that led the union on Sunday to say the talks had “taken a turn for the worse,” according to a person familiar with the negotiations.

About 48,000 UAW members have been on strike and picketing outside GM’s U.S. facilities since Sept. 16. The work stoppage has caused a ripple effect throughout the automaker’s North American operations, causing thousands of additional layoffs. It also has contributed to a double-digit decline in GM shares during the past three weeks.

GM’s stock closed Monday at $34.75, down almost 11% since the Friday before the strike began. Shares of the Detroit automaker are still up about 4% for the year.

Wall Street analysts estimate GM is losing $50 million to $100 million per day in production. J.P. Morgan, in a note to investors last week, estimated the UAW’s strike cost GM more than $1 billion during the third quarter, which closed Sept. 30.

Mexico production

GM became the largest producer of vehicles by volume in Mexico last year. The company, according to the Automotive News Data Center, produced 834,414 vehicles south of the border last year, an increase of 3.6% from the previous year, topping an estimated 763,257 for Nissan, which had been No. 1.

GM’s Ramos Arizpe plant produces the Chevrolet Equinox and Chevrolet Blazer crossovers. The San Luis Potosi plant produces the Chevrolet Equinox, GMC Terrain and Chevrolet Trax. GM also produces certain models of its highly profitable Chevrolet Silverado and GMC Sierra pickups at a third plant in Mexico, but the company idled that facility last week and furloughed 6,000 workers due to parts shortages as a result of the strike.

The increase of production in Mexico comes as the company attempts to reduce its U.S. capacity, drawing criticism from the union and politicians including President Donald Trump.

As part of this year’s negotiations with the UAW, GM was expected to attempt to negotiate the closure of up to four domestic plants, including large assembly plants in Ohio and Michigan, to address underutilized production capacity in North America. GM must contractually negotiate any plant closures with the UAW.

GM had 1 million units of underutilized capacity in the U.S. last year, said the Center for Automotive Research’s Dziczek.

“You want to have a little bit of headroom but a million units is a lot,” she said. GM, according to Dziczek, only used 68% of its domestic capacity in 2018. That compares with the industry average at 84%, excluding GM.

The Buckingham Research Group on Monday estimated GM has lost about 153,000 units of production after three weeks, much of which it won’t be able to make up in the fourth quarter.

Buckingham expects Ramos Arizpe to “likely” be idled this week. GM declined to comment on such “speculation.”

During the strike, GM continues to import vehicles from other countries, including cars and crossovers from South Korea, Europe and China.

United Auto Workers members on strike picket outside General Motors’ Detroit-Hamtramck Assembly plant on Sept. 25, 2019 in Detroit.

Michael Wayland / CNBC

‘Very costly’

Before the stirke, GM offered the union a deal that included more than $7 billion in investments, thousands of new jobs from GM and “solutions” for Detroit-Hamtramck Assembly in Michigan and Lordstown Assembly in Ohio, two plants potentially slated for closure.

According to a person familiar with the talks, that four-year proposal included production of an all-electric pickup at the Detroit plant and battery-cell production for workers in Ohio, but not guaranteed for Lordstown, which the automaker is attempting to sell. It’s unclear if those remain part of recent deals between the two sides.

GM has declined to comment on specifics of recent deals, saying the company continues “to negotiate in good faith with very good proposals that benefit employees today and builds a stronger future for all of us. We are committed to continuing discussions around the clock to reach a resolution.”

Moving production from Mexico to the underutilized car plants wouldn’t be a simple process, according to Dziczek. Specifically converting a U.S. car plant, which uses “unibody” construction, for full-size pickups, which are produced using “body-on-frame” manufacturing, would cost billions of dollars.

“It is a very, very costly endeavor,” she said. “It’s many years and many billions of dollars to move all Mexico production back to the U.S.”

Articles You May Like

Student loan interest rate for parents will soon be at its highest in decades
No ‘cop on the beat’: Why the SEC may deny new ether ETFs this month
Mercedes-Benz workers in Alabama vote against UAW union membership
A Report From The Last Frontier, Part III
A 20% home down payment isn’t ‘the law of the land,’ analyst says. Here’s how much people are paying

Leave a Reply

Your email address will not be published. Required fields are marked *