50,000 UAW Workers on Strike and GM is Already Just One Notch Above Junk

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Almost 50,000 UAW workers went on strike over the weekend. The sides are far apart according to some reports.

Warehouse Standstill

The AP reports GM Walkout Brings Factories and Warehouses to a Standstill.

Union spokesman Brian Rothenberg said the two sides have come to terms on only 2% of the contract. “We’ve got 98% to go,” he said Monday.

The strike shut down 33 manufacturing plants in nine states across the U.S., as well as 22 parts-distribution warehouses. It’s the first national strike by the union since a two-day walkout in 2007 that had little impact on the company.

Two Key Points

CNN comments on the GM Strike. Here are the two key points.

1: GM Could be Headed for Junk Bond Status

General Motors' credit rating could topple into junk bond status if the strike lasts more than a week or two, Moody's said. GM's debt rating is currently just one step above junk bond status.

2: Dealerships Aren't Hurting Yet

Although most car companies have a 53-day supply, GM has 59. GM also has an 80-day supply of trucks and SUVs, and an even larger supply of its most profitable trucks, like the Chevrolet Silverado and GMC Sierra.

GM Offers 2% Raises to UAW; Company Ends Strikers' Health Care

The Detroit Free Press reports GM Offers 2% Raises to UAW; Company Ends Strikers' Health Care

General Motors stopped paying for health care coverage for striking workers Tuesday, the company confirmed. That means striking GM union workers are eligible for union-paid COBRA to continue their health care benefits.

Meanwhile, more details emerged about GM's offer to the UAW. Two sources familiar with GM's offer said it called for a 2% wage increase for the first and third year of the four-year contract and 2% lump sum payments the second and fourth years.

“Two percent is nothing," said a local union leader who saw the deal. "We have not gained back anything we gave up during the bankruptcy."

The union had $721 million in its strike fund in 2018 and temporarily increased dues in March this year to boost it to $850 million. That fund also will pay striking workers $250 a week.

Strike Benefits

$250 a week does not go very far, especially when you have to pay your own healthcare insurance.

Workers are upset.

Perhaps they should be grateful they have a job.

Flirting With Bankruptcy Again

Despite the bailout in which bondholders were ripped off (not that I have any love of them), GM is back flirting with bankruptcy.

Bankruptcy is not at all imminent, but junk bond status implies increased risk.

Moody's downgraded Ford to junk on September 9. GM may be next.

As Yogi Berra famously stated, this is Déjà Vu All Over Again.

Mike "Mish" Shedlock

Comments (39)
No. 1-14
Country Bob
Country Bob

Don't let the door hit you on the way out you lazy dopes. Take a few city employees with you when you go.

Too many taxpayer bailouts. Too much union corruption. Consumers can't float your nonsense anymore

hmk
hmk

The UAW has more than one year in strike pay at $250/week. It would benefit GM to have at least a one month strike to clear out inventory.

Sechel
Sechel

Ford & GM are racing to the bottom. What a waste the bail-out was 10 years ago. Just delayed things

abend237-04
abend237-04

Some wags I know would say: Seems like yesterday that Obama shot the bondholders and handed their equity to the UAW for votes in his next election, but I would never say that....

shamrock
shamrock

4% raise over 4 years does seem a little low, no word on what they are asking for other than "higher".

SleemoG
SleemoG

Can robots strike? Oops.

thimk
thimk

well i guess we will see who has the fastest burn rate ,GM or unions

Top*GUN
Top*GUN

2 banana is dead on right... bond holders got screwed by Obama changing bankruptcy rules... not sure how that was legal... but it sure happened.. Also wasn't GM the company that had "Rubber Rooms" (see WSJ article from 10y ago) where GM union employees went everyday to get paid for doing Absolutely Nothing.. and what's really laughable is hearing union leadership claiming union members saved GM,,, that is the biggest load of crap... I distinctly remember taxpayers being soaked to save GM,,, wondering where that is spelled out in our Constitution!!!!

2banana
2banana

What kind of dopey statement is that?

Bondholders invested in GM bonds per contract law that they would be paid first and be paid fully in case of bankruptcy. GM bonds were priced with this mitigation to risk.

obama destroyed 100+ years on contract law to reward his political allies - the UAW in the GM bankruptcy.

I sure hope you don't ever sign a contract and then have some politician destroy you in order to reward his political buddies.

"Despite the bailout in which bondholders were ripped off (not that I have any love of them)"

stillCJ
stillCJ

Editor

Some thoughts on this subject:

  1. This would not be the first time striking workers have forced a company into bankruptcy.
  2. I still have not figured out how Obummer got away with screwing the bondholders, who are supposed to have first dibs on the remaining assets.
  3. After reading several articles lately on the corruption of the UAW leaders, I have to wonder how the workers can support them. They have been screwing the members.
  4. Mr. Market seems to like the strike, GM stock went up today.
  5. GM stock pays about 4% dividend, Ford dividend is over 6%. How does that compare with bank interest or bonds?
  6. Both companies make a decent profit; why are their bonds rated junk?
  7. Lastly: How is this going to encourage manufacturing in the US instead of other countries? I don't think the foreign GM plants are on strike.
abend237-04
abend237-04

stillcj, "Why are their bonds rated junk?" I've assumed it's the residual effect of the government recap of GM in which bondholders were slam dunked in favor of funding the UAW's pension fund . Democrats bought the UAW rank and file loyalty for a generation, but put a permanent cloud over every US-based auto maker's debt with the travesty deal. Personally, I'd buy an Argentine bond before a US automaker with the UAW infecting them.

Realist
Realist

Though I don’t always agree, I can at least understand when Americans make comments such as these :

Bring jobs back to America.

If we buy it in America, then build it in America.

American workers need to make a living wage.

Support American companies and American workers.

Then I see the same folks make these comments :

Don't let the door hit you on the way out you lazy dopes. Take a few city employees with you when you go.

They shouldn't get one dime. Look at what they make now, including benefits. Then compare that to what unskilled/semi-skilled labor gets across the rest of the country. I hope GM holds out for months.

It is difficult to reconcile the level of animosity that Americans hold for other Americans, many of whom have simply gone out and found the best job they can in order to support their families. They didn’t create the company, the union, or the rules; they just went out and got the best job they could find. And for that, they are vilified by their fellow Americans.

I now expect these same people to scream at me because somehow I’m the one who is anti-American. Reality is truly stranger than fiction.

ksdude69
ksdude69

"union-paid" healthcare.

magoomba
magoomba

I don't know about the stocks and bonds, but their cars sure are junk.