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S&P: General Motors may burn $1B if UAW strike lasts a week

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S&P: General Motors may burn $1B if UAW strike lasts a week

General Motors Co. could lose up to $1 billion in cash if a nationwide strike of workers runs through a week, according to a Sept. 18 research note from S&P Global Ratings analyst Lawrence Orlowski.

The strike, which was announced Sept. 15, was triggered after a collective bargaining agreement between GM and the United Auto Workers fell through over the lack of an agreement over wages, benefits, future product allocations, job security and temporary workers. It is the first strike to hit the U.S. auto industry since 2007, when UAW went on a two-day strike against the Michigan-based carmaker.

"We believe a quick resolution, as was the case in the 2007 strike, appears unlikely," Orlowski wrote.

The stoppage has hit 30 GM manufacturing plants in the U.S., including 12 assembly sites and eight engine and transmission plants.

Orlowski said the impact could balloon to $1 billion of cash burn as the company is estimated to lose production of up to 45,000 vehicles if the strike lasts a week.

However, Orlawski said the expected cash hit could be recovered when production resumes as GM had enough vehicle inventory as of Sept. 1. According to Orlowski, GM's "78-day supply was significantly higher than the industry average of 61 days, and we believe that GM may have proactively overstocked some high-volume models."

GM could see a reduction in earnings and liquidity if the strike lasts for over a week and could "introduce additional downside risks" if it were to prolong beyond two weeks, according to the note.

GM could also face a potential disruption to its supply chain related to its powertrain and related component plants in Mexico and Canada, Orlowski said. Earlier in the day, the carmaker's Canadian arm temporarily laid off about 1,200 workers at its Oshawa assembly plant after the U.S. strike resulted in a shortage of truck parts.

The agency added that it has "limited visibility" on the likelihood of the strike lasting several weeks and the carmaker's "ability to stem a multibillion cash burn in that scenario."

S&P Global Ratings said GM remains positioned for its current BBB rating with a stable outlook.

GM has strong liquidity, with $17.5 billion in automotive cash and marketable securities, plus $16.5 billion in borrowings under its automotive revolving credit facility, Orlowski noted.

Other auto industry experts and analysts earlier estimated the impact of the strike to range from $50 million to $100 million in losses per day. Credit Suisse analyst Dan Levy earlier said GM could "use the strike as an opportunity to keep inventory levels in-line."

GM's stock closed down 0.29% to $38.18 on Sept. 18.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.