GM Strikes May Hurt Sales Industrywide


The strikes crippling General Motors could curb auto sales industrywide and also hasten the end of a costly price war in which consumers have enjoyed hefty incentives, industry experts said.

Ford Motor and Chrysler--and to a lesser extent, Japanese producers such as Honda and Toyota--may grab some customers from GM, but they also could be hit with a cooling-off of overall sales as consumers go to the sidelines, experts said.

“Lengthy strikes generally hurt the whole industry,” said Joel Pitcoff, a Ford auto market analyst. “Some people sense they don’t have the same bargaining leverage, so they stay out of the market until the equilibrium is restored.”

Meanwhile, by reducing inventories of unsold vehicles, the strikes could prompt auto makers to end or reduce current incentive programs, including rebates of $750 to $1,500 per vehicle. Those incentives have supercharged auto sales figures, but reduced auto makers’ profits.


The strikes are not expected to affect June sales, which analysts say are continuing strong, because rebate offers will last through the month and dealer supplies are still plentiful.

Even if sales remain brisk, top Chrysler officials said Tuesday that the company couldn’t benefit from GM’s walkouts because its factories are already making as many cars and trucks as they can.

“We don’t have the capacity to take advantage of a strike at GM,” Chrysler Chairman Robert Eaton told reporters Tuesday at a news conference to unveil the 1999 Jeep Grand Cherokee sport-utility vehicle.

Not all of Ford’s plants are running full out, but the company is unlikely to make any major production increases in response to the strikes.


The opportunity for sales gains is even less for the Japanese, because GM buyers typically aren’t attracted to import brands, and the imports do not have as strong a lineup of popular light trucks as U.S. auto makers.

The strikes by 9,200 United Auto Workers members at two GM parts plants in Flint, Mich., have forced the closing of 17 assembly plants and idled 71,700 workers as of Tuesday.

The strikes’ effects continued to spread Tuesday as GM was forced to close more assembly operations and component factories because of parts shortages. Since the first strike began June 5, GM has shuttered nearly all its high-profit truck production and is likely to halt most of its car assembly by week’s end.

The at-times rancorous negotiations continued without any progress being reported Tuesday. Talks are scheduled to resume this morning.


The outlook for a settlement any time very soon is dim. Labor experts said the likelihood of a quick resolution appears doubtful with top UAW officials scheduled to leave this week for the union’s annual convention in Las Vegas beginning Sunday and GM scheduled for a two-week summer shutdown beginning June 29.

The strikes, which are costing GM an estimated $40 million a day, were prompted by disputes over work rules, job security and factory conditions.

Although rival auto makers are being careful not to gloat over GM’s labor woes, analysts said the companies are quietly developing strategies to grab any GM customers they can.

“They are crying crocodile tears for GM,” said Sean McAlinden, labor economist for the University of Michigan.


The auto makers said GM inventories are still fairly strong. As of the end of May, GM had a 58-day supply of vehicles, compared with 57 for Chrysler and 61 for Ford. Sixty days is considered a healthy inventory level.

However, GM has shortages of some hot sellers, such as its GMC Yukon sport-utility vehicle. And the industrywide two-week summer shutdown that begins the last week in June could drain inventories further.

Analysts said strike effects tend to be short-term. A 17-day strike at two GM parts plants in March 1996 shut down nearly all of GM production and lowered profit by $900 million for the second quarter. GM was able to recover some profits and production in subsequent quarters, and it recovered market share quickly. Indeed, GM’s inventory was so high at the time that the strike allowed it to reduce supply without turning to rebates.

Today’s situation is much different. GM’s inventory levels are lower and its incentive costs higher. The company initiated a price war in April in an effort to check a market share slide.


Rivals quickly matched its incentives, which now average about $1,500 a vehicle, including $500 loyalty coupons for current owners of Big Three cars and trucks.

The incentives are expected to drop with the expiration of the coupon offers in early July, dwindling supplies caused by the GM strike and the introduction of 1999 models in coming months.

Auto makers continue to predict that vehicle sales in 1998 will be in the 15-million range, about the same as each of the last four years. But sales are likely to show a downtrend in the second half because the high incentives prompted some consumers to buy earlier than they otherwise would have.

“Everybody expects the industry to cool off after this month because of the overheating from these incentives,” Ford analyst Pitcoff said.