GM strike ripples across economy raising fears of new recession

Bloomberg

Here in the heart of America’s car industry, car parts have nowhere to go.
Eighty-five tractor trailers full of hoods, bumpers and other assorted parts sat, unloaded, in Lansing, Michigan, — more evidence of the cost of the General Motors (GM) strike that has shut down most of its North American plants and idled 46,000 workers.
Soon to enter its fourth week, the strike is rippling across the economy, from parts suppliers in Michigan and Canada to restaurants and other businesses that serve employees who now find themselves tight on cash. The layoffs have added to fears that a weakened manufacturing sector could tip the economy into recession — potentially playing a role in next year’s election especially in a swing state like Michigan.
“It’s a necessary strike but everyone is feeling the hurt,” said Mike Luna, a warehouse worker and a chairman of United Auto Workers Local 652, which is made up
of striking GM workers and many laid off supplier employees.
Luna works at a Ryder Integrated Logistics warehouse, where about 500 workers have been laid off, leaving the semi-trailers in the parking lot. They are chock full of auto parts destined for one of two nearby GM plants: Hoods and painted body panels for Chevrolet Camaros; and hinges, hubcaps and exhaust systems for Cadillac sedans, Buick SUVs and Chevys.
The automaker itself has already lost more than $1 billion in earnings before interest and taxes, according to one analyst estimate. GM’s bigger parts suppliers are losing as much as
$2 million a day by the same measurement. Workers at smaller parts makers across the US are sending employees home.
In Michigan, parts workers furloughed by the walkout do not get strike pay
and just began receiving state unemployment benefits that max out at $342 a week — not enough for most of his co-workers to live on, Luna said. Striking workers at GM get even less from a UAW rainy day fund, just $250 a week.
In a letter to members, Terry Dittes, the union’s vice president in charge of
talks with GM, said “good progress” has been made negotiating issues such as healthcare and the treatment of temporary workers, but others like job security and wages remain sticking points. “We will continue to work over the weekend in an attempt to reach a tentative agreement,” Dittes wrote.

Recession Concern
The strike comes at a potential inflection point for America’s economy. New statistics showed a sharp drop in US manufacturing in September.
The GM strike isn’t helping. It’s chopped $400 million in direct wages out of the US economy, with half of that loss coming in Michigan, Patrick Anderson, chief executive officer of Anderson Economic Group in Lansing, estimated. The US Treasury has lost $154 million so far just in payroll and income taxes.
In the southeast Michigan economy, a factory-heavy region, the layoffs have shaved off 1.8 percent of earned income, he said. If that trend lasts for a quarter, “the chances of southeast Michigan going into a recession are pretty high,” Anderson said. The impact stretches beyond Michigan.
Canadian components maker Linamar, which makes metal parts for drivetrains like camshafts and transmission cases, said the sudden drop in GM orders is costing it up to $750,000 a day in lost revenue. Shares of the supplier slid as much as 13.8 percent to a six-year low.
The walkout has forced American Axle & Manufacturing Holdings Inc. to lay off workers at its largest driveline plant in the US. The company, which was spun off from GM in 1994, still relies on the automaker for 39 percent of its revenue.
CEO David Dauch told Bloomberg his company may adjust its full-year earnings outlook if the strike continues for “an extended period of time.” Its stock has fallen 18 percent since the labour action began.