Will This Angry Labor Union Squeeze General Motors' Profits?

By Markets Fool.com

Canadian union Unifor is threatening a strike that could stallproduction of the Chevrolet Tahoe and other important GM trucks and SUVs. Image source: General Motors.

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With a deadline looming, General Motors (NYSE: GM) and the labor union that represents workers at GM's factories in Canada are "miles apart" on a new labor deal -- and the union's chief is threatening a strike that could have a big impact on GM's bottom line.

Why the union is threatening a strike against GM

Canada's Unifor union represents autoworkers at GM, Ford, and Fiat Chrysler Automobiles factories in Canada. Like its U.S. counterpart, Unifor's usual negotiating tactic is to select one "target" automaker, apply pressure to get the best contract it can with that automaker, and then try to get the others to agree to a similar deal.

GM is Unifor's "target" in the current round of negotiations. The contract that is set to expire covers workers at 2 of GM's 3 Canadian factories: Oshawa Assembly, which builds the Chevrolet Impala, Buick Regal, Cadillac XTS, and Chevrolet Equinox; and St. Catharines Powertrain, which builds V6 and V8 engines and several transmissions for a long list of GM products, including some of its best-selling SUVs and crossovers. (The third GM factory in Canada is covered by a separate contract that doesn't expire until next year.)

The key issue in negotiations is that GM hasn't committed to building any new products at Oshawa Assembly after 2019. Unifor's leadership says that the union will strike as soon as the current contract expires if GM doesn't commit to building future products at Oshawa, while GM says it won't even discuss future product commitments at Oshawa until the negotiations are concluded.

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The Oshawa plant employs about 2,400 hourly workers.

Unifor's contract with GM is set to expire at 11:59 p.m. on Monday. That's the deadline. If there's no deal at that point, Unifor president Jesse Dias told Automotive News this week, then the union will strike.

How badly would a strike hurt GM?

A strike at Oshawa wouldn't be the end of the world for GM. The Equinox crossover is a big-selling product, but GM also builds the Equinox at a second factory that could probably pick up at least some of the slack.

A strike at the St. Catharines Powertrain plant, however, could be a different story if it goes on for more than a day or two. According to GM's website, the St. Catharines facility builds engines used in the huge-selling Chevrolet Silverado and GMC Sierra pickups, the Chevy Tahoe and GMC Yukon SUVs, and the Chevrolet Equinox, GMC Terrain and Acadia, and Buick Enclave crossovers, among other products. These are all important, big-selling, high-profit products. A protracted production disruption caused by a shortage of engines could make a significant dent in GM's bottom line.

How much should GM shareholders worry about this now?

Speaking as a GM shareholder, I'm not too worried yet. GM's recent history in union negotiations suggests that a strike is unlikely, and that any strike is likely to be short.

A short strike would have little effect on GM's bottom line. The real risk comes if the factories are shut down for a week or longer -- long enough to disrupt other GM production lines.

Right now,it's a situation to watch. We'llbe watching.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.