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UAW Leadership Is Torpedoing Its Members And The Broader U.S. Economy With Its Ridiculous Strike At GM

It’s real now.  Sunday’s news of a breakdown in negotiations between General Motors and the United Auto Workers raises the specter of a debilitating shutdown against a backdrop of a U.S. economy that, as I noted in my Forbes column last week, is clearly slowing.

So, as the strike enters week four, the comment from a UAW spokesman that “things have taken a turn for the worse” is exactly what bullish economists must have feared.  The strike began on September 15th, and thus has straddled the line between the third quarter and fourth quarter. So, the impact on reported U.S. GDP figures might be muted by the allocation of pain in two different periods, but there will be pain, indeed. 

I have read some ridiculous columns–although not in the Detroit News or Detroit Free Press, both of which have provided excellent coverage of the GM/UAW story and should be read daily by anyone interested–with wild prophecies about the root causes of the strike, but there really is only cause:  the relevance of the UAW. 

According to the News’ reporting, the fallout from the UAW corruption scandal has now totaled nine convictions, with charges also pending against a former UAW official and new charges filed last Friday against Vance Pearson, the director of the UAW’s Region 5. 

According to the News’ analysis of Department of Labor data, UAW membership actually declined by 9 percent to 395,703.  In 2006 the UAW had 538,448 members and 701,000 members in 2002. UAW total membership peaked in 1979 at 1,527,838.

So, the folks at the UAW’s Solidarity House, including President Gary Jones, whom the News reported was an unnamed co-conspirator in the complaint against Vance Pearson, must be shaking in their boots.  With a presidential election looming it is easy for UAW leaders to parrot left-wing soundbites from the “dumb and dumber” duo of Sanders and Warren, but, as I mentioned in this Forbes column, no sentient human being could consider the average GM hourly worker to be underpaid. 

No, this strike is about relevance.  It has taken the UAW 40 years to lose more than 1.1 million members, but it has only taken three weeks for the union to impact the already-slowing U.S. economy. 

From an equity valuation perspective this labor stoppage is absolutely horrible for GM. I expect GM’s fourth quarter results—in the third quarter GM was selling out of inventory, in the fourth quarter the lack of production will deplete those stocks—to be a “kitchen sink” exercise in one-time charges with GM’s total loss possibly exceeding $1 billion.  There is no reason for GM shares to be trading at above $30 in such a scenario, and I believe GM shares’ 52-week low of $30.56 could be breached by the end of next week if the strike continues. 

 Is the union happy about that?  The second largest holder of GM shares is, of course, the UAW’s VEBA healthcare trust, but, hey, why worry about the details.  If I had FBI agents raiding my house and confiscating huge amounts of my property–even sets of golf clubs–I might be somewhat distracted.  I feel that the UAW leadership is in that position now, and it is the rank-and file—subsisting now on $250 week strike pay—that will continue to feel the pain. 

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