UAW’s Council approved a tentative contract with GM. But in a disappointing development for GM, UAW opted to remain on strike until the deal is fully ratified by members... in another week (Oct 25). We cited this as a risk in our 9/18 Daily (our base case model assumed that the strike would end Oct. 28). We believe that there may be several reasons UAW took this route, including the possibility that despite generous terms, UAW is not highly confident that this contract will be ratified. In that case, GM and UAW could be forced to return to the table. With respect to the contract itself, additional details supported our initial conclusions: We estimate that the deal will cost GM less than $300 MM in 2020 ($235 MM net of restructuring), and we do not see this as a risk to 2020 financial targets (or longer term headcount flexibility).
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We wanted to flag a few highlights in today's (10/17/19) Wolfe Research Auto Daily....
We wanted to flag a few highlights in today's (10/16/19) Wolfe Research Auto Daily....
Local Detroit reporters have published scorecards on the state of negotiations between GM and UAW. As discussed in today’s Daily, some of the issues appear to have been decided, and a number remain unsettled. But it’s worth noting that UAW has summoned all 175 members of their GM Council to meet in Detroit on Thursday morning. This may or may not mean that a tentative deal is close (this council must approve a tentative deal in order to send it to members for ratification). Once a deal is reached, Investors will likely ask about longer term implications. There is reason for concern: Many GM vehicles are already being produced at low or no profit. And Investors also note parallels to UAW’s aggressive tack during the 1990s and early 2000’s, which ultimately eroded the D3’s competitiveness.
No news on the GM strike as of late Sunday
GM finally received UAW‘s response to their latest offer on Friday night. Unfortunately, UAW also escalated their war of words against the company, and GM resorted to the unusual step of making key elements of their offer public. At this point, we cannot gauge how far apart the negotiators are… but the public rhetoric was not a good sign. The aggressive tack being taken by UAW has historical precedent (demands made during the 1990s and early 2000s ultimately eroded the D3’s competitiveness, flexibility, and cost of capital.) We believe that GM Mgmt. is well aware of this risk.
Q3 China Update – Demand stuck in the 20-21 MM range, but y/y comps get easier in Q4
China sales fell 6.5% y/y in September (20.0 MM SAAR), with Q3 down 6.8% (20.7 MM SAAR) and Q3 LVP down about 7% y/y.
Q3 is generally expected to be a throwaway quarter for Autos and Auto Parts names. Plenty of companies will miss if they have exposure to the GM strike. But we don’t expect the Street to react to this because... 1) This is expected, and; 2) The stocks, by and large, already reflect a moderate downturn.
What to do? For this Q3 preview we are placing more focus on stocks that appear to have catalysts… positive or negative. We believe that there may be a few: Clearly, the biggest near term catalyst would be if the GM strike is resolved soon… And there are signs that this may happen.
We also highlight a few individual names with potential catalysts: Somewhat positive for GM, F, APTV, AXL, BWA, VC, CTB, and GT; Potentially negative for FCA, DLPH, and TEN.
We wanted to flag a few highlights in today's (10/10/19) Wolfe Research Auto Daily....
We wanted to flag a few highlights in today's (10/09/19) Wolfe Research Auto Daily....
The report (in slide format) linked here includes updated views on our expectation for Powertrain mix through 2030 (i.e. split of ICE, Hybrid, PHEV, BEV), a bottoms-up analysis of the costs of European CO2 compliance beginning in 2020, and company-specific takeaways.
We wanted to flag a few highlights in today's (10/08/2019) Wolfe Research Auto Daily....
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