The workers that build one of General Motors' (GM 3.45%) best-selling products are now on strike. Workers at the Canadian factory that builds the hot-selling Chevrolet Equinox SUV walked out late Sunday night after contract negotiations broke down.
The strike has the potential to be an expensive hassle for GM. A protracted shortage of Equinoxes would make a meaningful dent in GM's bottom line. Here's what we know.
A strike at the Canadian factory that produces the hot-selling Chevrolet Equinox could become a big headache for GM. Image source: General Motors.
Why 2,750 Canadian GM workers went on strike
Unifor, the Canadian labor union that represents about 2,750 workers at GM's CAMI Assembly plant in Ingersoll, Ontario, said in a statement late Sunday night that its bargaining committee was unable to reach an agreement on a new contract with GM. It's the first strike in Canada against a U.S. automaker in over 20 years.
The issues in contention are somewhat complicated, but the gist is this: The union wants assurances that GM plans to keep the factory busy for years to come.
It's not hard to see why the workers are concerned. The CAMI factory used to produce the Equinox and the GMC Terrain. Both models were redesigned for the 2018 model year, but CAMI is only producing the new Equinox. GM moved production of the all-new Terrain to Mexico.
At the time the move was announced, GM said it was simply making room to build more Equinoxes at CAMI. But GM also builds the new Equinox in Mexico. So far, Mexican production of the Equinox has been modest, but the Canadian workers are worried that GM will move more Equinox production south, putting their jobs at risk.
Union officials have asked GM to designate the CAMI plant as the primary producer of the Equinox, and to commit to building other products at the factory well into the future, beyond the current-generation Equinox's life cycle.
Apparently, GM's negotiators have been unwilling to do that, hence the strike.
"Every member understands the importance of reaching a deal that secures production, and what that means to our families and the community," said Mike Van Boekel, who leads the Unifor local that represents CAMI's workers. "The membership showed incredibly strong support for their bargaining committee throughout these negotiations."
GM said in a statement that it was "disappointed" it was unable to agree on a new contract with the union. "We encourage Unifor to resume negotiations and to continue working together to secure a competitive agreement," it said.
GM's CAMI Assembly Plant in Ingersoll, Ontario, Canada. "CAMI" is short for "Canadian Automotive Manufacturing, Inc." The name is a leftover from a now-ended joint venture. Image source: General Motors.
Why this factory is a particularly tough place for GM to face a strike
A strike at the factory that produces most of the Equinoxes sold in the U.S. and Canada has the potential to put a big dent in GM's profits if it lasts more than a few days.
The problem is simple to describe: The Equinox is a hot new model that has been selling in very big numbers. Because of high demand, supplies are already thinner than GM and its dealers would probably like. With every day of lost production, that supply gets even thinner. At some point, GM loses sales.
While GM can probably modestly increase Mexican production of the Equinox, that won't cover the shortfall. At some point, probably within a few weeks, GM's dealers in the U.S. and Canada won't have enough Equinoxes to meet demand. They (and GM) will lose sales to other brands.
The 2018 Equinox is a big hit for GM
GM completely redesigned the Equinox for the 2018 model year. The new model has received very good reviews and is now a strong contender in one of the hottest segments of the market. Not surprisingly, sales have been terrific since it began arriving at dealers early this year: Through August, U.S. Equinox sales are up 85% to 185,223. It's now GM's second-best-selling vehicle in the U.S., after the Chevrolet Silverado pickup. More importantly, it has helped GM gain ground against rivals like Ford Motor Company's (F 2.28%) Escape, Toyota's (TM 1.52%) RAV4, and Honda's (HMC 0.96%) huge-selling CR-V.
Sales have been so strong that CAMI's production may have fallen a bit behind demand. In the auto industry, the number of vehicles an automaker has in transit and at its dealers is expressed in terms of days of supply at the current pace of sales. For a vehicle like the Equinox, 60 to 70 days' worth would be considered an ideal supply -- enough to give consumers plenty of choices, but not too many.
In recent months, GM has had somewhat more vehicles in inventory than it would like. Supplies of some models have exceeded 100 days' worth. But the hot-selling Equinox is an exception. As of Sept. 1, GM had only about 53 days' worth of Equinoxes at it U.S. dealers, down from 74 days' worth at the beginning of August.
The upshot: Not a big problem yet, but it could become one
Long story short: Because the CAMI factory produces a new model that's in very high demand, and because supplies are already somewhat tight, GM is at risk of not having enough Equinoxes to meet demand.
And because the Equinox is a highly profitable new model that sells in big numbers, the drop in sales that would result from tight supplies would have a substantial impact on GM's profits.
To be clear, that's a risk, but not yet a reality. Generally speaking, in modern times, strikes like these are usually short-lived. The workers stay on the picket lines just long enough to make their point, the company offers some concessions, and everyone heads back to the bargaining table (and to work), usually within a day or two.
If that's how this plays out, it will be no big deal for GM shareholders. But if it drags on for more than a few days, it'll become a problem.
