Updated from 2:34 p.m. EDT
plants across the country walked off the job Monday, marking the first time since 1970 that a contract breakdown has led to a nationwide strike at the world's largest automaker.
After the United Auto Workers extended marathon negotiations with GM past the earlier Sept. 14 deadline, the union set a firm deadline late Sunday for Monday at 11 a.m. EDT. When the time came and no deal had been reached, the UAW declared a strike and workers left their posts, crippling the automaker's production lines in North America.
GM gave back its early gains after the strike began, but investors were able to take heart that the company was not flinching from its mission to reduce its bloated cost structure in a way that will make it more competitive with lower-cost, foreign-based competitors, like
Shares of GM eased 20 cents, or 0.6%, to $34.74.
, the No. 2 U.S. automaker, was up 25 cents, or 3%, to $8.48.
"We were disappointed to find out that this was going to be a one-way negotiation," said UAW president Ron Gettelfinger at a news conference after the strike began. "It was going to be GM's way at the expense of the workers. The company walked right up to the deadline like they really didn't care."
He said the parties were headed back to the bargaining table on Monday afternoon, but "with the frame of mind we're in right now, we expect the company would move rather expeditiously on the open issues that are in front of us."
A spokesman for Ford refused to comment on labor negotiations, while Mike Aberlich, a spokesman at Chrysler, said there were no work stoppages at his company. The UAW represents roughly 73,000 U.S. workers at GM facilities, and the walk-out was taking place at all 80 of the company's domestic auto plants.
The threat of an extended national strike is an ominous one for GM and its Detroit counterparts, but investors took heart when Gettelfinger said the sticking point in negotiations stemmed from "job security," rather than disagreement over the formation of a union-controlled healthcare trust fund.
Such a fund could free Detroit's Big Three automakers from roughly $95 billion in health care obligations in return for a big cash payment to provide financing. The burgeoning retiree health care burden for the U.S. auto industry was major factor that drove up costs for GM, Ford and Chrysler and led ratings agencies to downgrade their credit ratings to junk status.
"My guess is
the strike will be a short one," says David Healy, auto analyst with Burnham Securities. "Investors are right to be encouraged that GM is holding its ground on job security."
Healy estimates that if the strike is sustained, it could cost GM roughly $335 million, or 59 to 60 cents a share, per week in terms of after-tax net income. In past labor strikes, GM has lost market share that it has never recovered.
Standard & Poor's analyst Robert Schultz said in a report that "if the work stoppage were to persist beyond a brief and largely symbolic period, GM's ratings could be placed on CreditWatch, with negative implications, along with the ratings on certain suppliers that are heavily dependent on GM production."
That said, Schultz said he expects the two sides to reach an agreement in the "near future that will start to address
GM's legacy cost issues."
The GM strike comes as automakers are suffering a sales slowdown stemming from the national housing slump, which also led to a credit crisis in the world's financial markets. Moody's Investors Service chief economist John Lonski noted that GM is a much smaller player in the U.S. economy than it has been historically, and he said the economy "should be able to weather a strike" at GM.
GM said it was disappointed with the UAW's decision to call a national strike.
"The bargaining involves complex, difficult issues that affect the job security of our U.S. work force and the long-term viability of the company," GM said in a statement. "We are fully committed to working with the UAW to develop solutions together to address the competitive challenges facing General Motors. We will continue focusing our efforts on reaching an agreement as soon as possible."
In a statement, UAW Vice President Cal Rapson made the union's first reference to GM's recent disclosure that its CEO, Rick Wagoner, was awarded restricted stock valued at $2.8 million and 500,000 options as part of his pay package for 2006.
"This is our reward ... a complete failure by GM to address the reasonable needs and concerns of our members," said Rapson. "Instead, in 2007 company executives continued to award themselves bonuses while demanding that our members accept a reduced standard of living."