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Week 15: Closing Time

Here we have it, the end of an era. It is hard to believe these past three months have gone so quickly. As you may have noticed, this blog revolved around the UAW strike that took place at GM factories. Naturally, I learned a lot about the negotiation process between companies and unions. I learned also about the impending paradigm shift in the auto industry. I also learned that General Motors is attempting to make itself more adaptable to the upcoming industry changes. For example, by selling its Lordstown plant to a company that produces electric trucks and gaining an equity stake in the company, GM has shown its awareness of the shift. I think that the increasingly rapid rate at which technology and automation is invading our lives, a company that must negotiate with a union is at a disadvantage.

General Motors’ has locked itself into an agreement with the UAW for the next four years about how much it will pay its employees and even, to a certain extent, how many people the company will employ. I think that the quickly changing landscape of the auto industry will outpace the speed at which GM and the UAW can agree on labor terms. In my opinion, another strike will occur in four years’ time and the next one could become more bitter and last even longer than this year’s strike. For this reason, I find the future at GM to be largely unpredictable and shaky. Therefore, I would not invest in General Motors at this point. (Close readers of my blog will note that this is a change in position from the beginning of the semester) By the same token, although I would love a dynamic work environment in which I am exposed to many challenges, I would not want to work at General Motors anymore. I believe I could find a dynamic and challenging job in a different industry that would not be so rife with uncertainty.

As a final note: I do not wish to seem anti-union. I believe collective bargaining is incredibly important for protecting the rights of workers. I simply think that in these times of change, collective bargaining will hold companies like GM back from being able to capitalize on developments as quickly as other companies that do not rely on unionized labor.

Special thanks to Mike Colias and Nora Naughton of the Wall Street Journal for their continued commitment to journalism and specifically to covering General Motors. This blog would not be possible without their contributions.


Backpack to Briefcase: The Importance of Experiential Learning

Hands on learning is often preached in disciplines such as chemistry, in which students perform several lab experiments. How could you experience hands on learning in other subjects though?

With the help of Jenna DellOrfano, Assistant Director of Experiential Education & Employer Outreach at the Clay Center in the Villanova School of Business, this blog post will illuminate hands-on learning as part of the curriculum in VSB. Recently, I attended the Experiential Education Basics Session, led by Ms. DellOrfano, which covered three main types of hands on learning as part of the business curriculum: externships, Co-Ops, and internships.

We will start with Externships, the lowest level of commitment. Because of this low level of commitment, the school of business offers no academic credit for an externship. An Externship is usually only a few days, on-site with the employer. These experiences expose the participants to multiple facets of the business. Typically, these programs include office tours, team-building activities and networking opportunities. If you would like more information on externship programs, visit this link.

After an externship, a company may offer an internship to select students. An internship is an experience in which a student effectively works at a company for a couple of months. Like an externship, an internship allows students to network, experience the organizational culture, and become acclimated with potential career paths. Sometimes, an internship can lead to an offer of a full-time job for a student. Unlike externships, internships can also result in academic credit!

Another interesting internship opportunity at Villanova is the Spring Accounting Internship Program. The program involves working full time at an accounting firm during the spring semester, accounting’s “busy season.” Of course, students who participate in this program cannot take classes in the spring. To make up for lost time, these students can take up to 12 credits during the summer to recoup their losses and remain on track to graduate in four years. As with other internships, the Spring Accounting Internship Program often leads to full-time job offers for the students involved.

Finally, Jenna spoke about Co-Op programs. A Co-Op is a six-month long program during which a student works full-time for the organization. A Co-Op grants six academic credits, which helps the students stay on schedule to graduate in four years. Furthermore, Co-Ops give students a competitive salary. Often, participating in a Co-Op results in priority consideration for full-time employment upon graduation. Villanova offers Co-Ops with nine different organizations, including Johnson and Johnson, Lincoln Financial Group, Morgan Stanley, and SAP.

Not only does participation in an Experiential Learning program give you hands on experience, networking opportunities, and sometimes academic credit, often times it can lead directly to full-time employment. If any of these opportunities interest you, you should visit the Clay Center, whether in person or via the website. Employers today look to target students early through externships. Once students have entered a company’s “pipeline,” they can often move from externship to internship to career if they wish. For all of these reasons, Villanova encourages Experiential Education, and so does Jenna DellOrfano.

Martin Manion

VSB 1015-H01 Borden

Week 12: Corruption, Lawsuits, and the Like

            In the past, this blog has spoken only briefly about the ongoing corruption investigation into the UAW. That will now change. Gary Jones has stepped away from his role at the union, making him the now former president of the UAW (WSJ). As reported by Christina Rogers of the Wall Street Journal, “Mr. Jones made the decision to resign from his position and retire from the union,” on Wednesday (WSJ). How do the newest developments in the corruption investigation relate to GM? Let’s explore

Obviously, as you have seen by following my blog for the past few months, General Motors does a lot of dealings with the United Auto Workers. So do GM’s competitors, like Fiat Chrysler. Another article from Christina Rogers, co-authored by Nora Naughton, states that GM accused Fiat Chrysler of, “bribing union negotiators to gain a competitive advantage, triggering an unusual legal dispute between crosstown rivals by filing a federal racketeering lawsuit,” (WSJ). This lawsuit is quite novel, “industry analysts say they can’t recall the last time one Detroit car company sued another, especially over dealings with the UAW,” (WSJ). GM has taken issue with the fact that Fiat Chrysler has historically had low labor costs. As Naughton and Rogers note, the company, “currently has an $8 hourly labor cost advantage over GM,” (WSJ). In the suit, GM accuses Fiat Chrysler of, “corrupting the collective bargaining process in 2011 and 2015 … to solidify a labor cost advantage,” (WSJ). GM goes further, alleging that, “Fiat Chrysler executives obtained advantageous contract terms from the UAW by paying off union leaders,” (WSJ). Fiat Chrysler has already been embroiled in the federal investigation, three employees have entered guilty pleas.

This year, the UAW initiated a strike at GM factories that lasted forty days and resulted in a new labor contract. After this contract was ratified, the UAW turned its efforts to Ford and Fiat, with whom it has been negotiating contracts. In response to the lawsuit, Fiat Chrysler, “accused GM of trying to interfere with ongoing UAW negotiations,” (WSJ). Not only is the company in the middle of labor talks, it is also attempting to pull of a merger with French auto maker PSA. The accusations by General Motors though are far from the first. Federal prosecutors have been focused on, “a conspiracy by Fiat Chrysler executives to keep UAW officials ‘fat, dumb and happy,’ as prosecutors have said,” (WSJ). As Rogers and Naughton report, “GM will ask for ‘significant damages’ … after the discovery phase of the lawsuit is complete,” (WSJ).

The ongoing investigation has until now been a point of periphery interest for this blog, however now it comes to center stage. The outcome of both the federal investigation and the GM lawsuit will certainly have lasting ramifications on the auto industry. Unfortunately, I doubt they will be resolved before the end of the semester. Even if I no longer post on this blog regularly, I know I will keep up with my new friends at GM, and I hope you do too.



Week 11: Shortages and Emissions Battles

In a relatively slow week for General Motors, at least in terms of stories from the Wall Street Journal, the auto maker’s stakeholders are still being affected by the company’s actions.

Image result for gm cars awaiting repair
Amanie Mokdad’s 2018 CT6 sedan is still awaiting parts for repairs after a driver rear-ended her on September 1. (Photo: Amanie Mokdad)

            Up until now, this blog has only discussed the ramifications of the strike in terms of two parties: GM and the UAW. However, the strike of course also affects customers. Jamie LaReau of the Detroit Free Press has spent time speaking with both auto-repair shops and ultimate consumers about their experience. Amanie Mokdad recently leased a Cadillac from General Motors. In September, she was rear ended, she has now, “waited 10 weeks for her car to be repaired,” (Detroit Free Press). According to Mokdad, “GM still has not delivered the parts … to fix her car or given her answers on a repair or a loaner car,” (Detroit Free Press). Apparently, this is not an isolated incident, “GM dealers report dozens of customers have been waiting … for repairs that can’t happen until GM delivers parts,” (Detroit Free Press). GM claims that they are working on getting back to normal as quickly as possible, but some dealers disagree. Lynn Thompson, co-owner of a car dealership in Springfield, Missouri, is quoted by the Detroit Free Press as saying, “we’re told it’ll take three to four months to get back to normal.” The strike may be over, but many stakeholders, besides UAW members, are still feeling the effects as they wait for production to get back to normal.

In another state, California recently announced a decision that state agencies, “will stop purchasing vehicles from carmakers that haven’t agreed to follow California’s clean car rules,” (Cal Matters). This decision is important because it, “affects General Motors, … and multiple other automakers that sided with the Trump administration in the ongoing battle over tailpipe pollution rules,” (Cal Matters). General Motors should be particularly concerned because, “California spent more than $27 million on passenger vehicles from GM-owned Chevrolet in 2018,” (Cal Matters).

            All in all, this week was rife with bad news for or about General Motors. Customer relations, which are very important for any company, are clearly taking a hit. As are revenues, since a customer which formerly spent $27 million on GM products will no longer do so. General Motors will have to adapt and respond to these instances to keep themselves in the public’s good graces.


Week 10: Major Factory Deal

As a result of the newly ratified contract between General Motors and the United Auto Workers, GM has sold its Lordstown, Ohio Plant. The plant was sold to Lordstown Motors Corporation, an electric truck maker owned by the Workhorse Group. Mike Colias reports that, “the electric-truck startup plans to use union labor,” which is great news for the UAW (WSJ). However, as I have previously blogged about, “battery-powered vehicles require far fewer parts and are less complex to assemble,” which means fewer workers are required (WSJ). According to Al Root, “GM … will keep an equity stake in products that emerge from the old plant,” (Barron’s). These terms benefit both parties, as GM will now have a larger footprint in the electric pickup truck industry and, “having GM on board means Workhorse will have to raise less money,” to purchase and use the factory (Barron’s).

            The sale is yet another sign of GM’s awareness of the coming switch to electric vehicles. Mike Colias reports that the company, “said the sale … could help the area become a hub for electric-vehicle manufacturing,” (WSJ). Not wanting to miss out on the action, “GM has also said it will invest in a nearby factory that will make battery cells for electric vehicles,” (WSJ). As mentioned earlier, GM is retaining an equity stake in the products produced at the factory, in exchange, “for providing the truck start up with intellectual property,” (Barron’s). Trucks are some of the company’s most profitable products, and, “all the investments and internal development in electric trucks appear designed to keep that true in the future – no matter which EV start-up gains traction in the marketplace,” (Barron’s).

General Motors decided to close the plant around one year ago, a decision which received sharp criticism from President Trump at the time. On Twitter, he wrote, “General Motors must get their Lordstown, Ohio, plant open, maybe in a different form or with a new owner, FAST!” (Twitter). After the announcement that GM was in talks to sell the factory, “the news was lauded by President Trump,” (WSJ). Although my predictions that he might intervene in the strike never materialized, he will likely have more thoughts on the changing auto industry in the coming weeks and months.


Week 9: Results of the Strike: You’re Out (nearly 3 billion dollars!)

After a 40-day strike at its U.S. factories, the company “lowered its full-year profit outlook,” as reported by Mike Colias of the Wall Street Journal. The company reported that the strike, “wiped out nearly all its free cash flow for the year and will cost the Detroit auto maker close to $3 billion in lost earnings,” (WSJ). Earlier in the strike, I wrote about analyst estimates that said the strike was costing GM, “$50 million to $100 million a day in lost profits,” as originally reported by Nora Naughton and Mike Colias (WSJ). Over the period of a 40-day strike, that translates to $2-4 billion. While $3 billion falls neatly in this range, Mike Colias now reports that the, “third quarter results … easily surpassed analysts’ forecasts,” (WSJ). On Tuesday, after the results were published, “GM shares rose 4.3%,” a sign of confidence for next years earnings, “underpinned by a refreshed line of pickup trucks, the company’s biggest moneymakers,” (WSJ). Despite the strike, “the share-price gains made up nearly all the ground the stock had lost since the strike began in mid-September,” (WSJ). Although the stock price was largely unaffected by the strike, earnings per share fell by $0.52, to $1.72 (GM). Although the EPS fell by $.52, the, average Wall Street analyst estimate was $1.31 (WSJ). All of this combines to show that while General Motors was hurt by the strike, they did not suffer as much as expected.

            However, do not take this to mean that General Motors is on cruise control. The company’s Chief Financial Officer, Dhivya Suryadevara noted that, “the company lost output of about 300,000 vehicles from the strike,” (WSJ). This lost production, “derailed the company’s plans for a big second half of 2019 … after profit slipped in the first half of the year,” (WSJ). GM also has a large presence in China, whose car market is experiencing a downturn; “GM’s third-quarter income from China fell 42% to $282 million,” (WSJ). While the firm was able to, “boost its pretax profit margin in North America … to 10.8% from 10.2 %,” its free cash flow, “is expected to be less than $1 billion,” (WSJ). In closing, General Motors was definitely injured by the 40 day UAW strike, but they performed admirably, managing to outperform most analyst estimates.


Week 8: Strike Breakthrough

Finally, after 40 days of idle factories, the strike of UAW workers at GM plants has ended. The strike, which has been a major storyline of this blog since week 3, officially stopped when UAW workers confirmed the new labor deal with a 57% majority. Nora Naughton of the Wall Street Journal reports that the new deal, “includes better wages, hefty signing bonuses and a commitment from GM to invest $7.7 billion in its U.S. manufacturing operations, securing 9,000 jobs,” (WSJ). On the flipside, the deal allows General Motors to continue its plans to close three factories in the United States. To recoup losses for both groups, “the car company will schedule overtime,” (WSJ). Overtime makes up for lost production and allows workers who have been without pay for weeks an opportunity to earn back these lost wages. The strike is estimated to result in a bottom line hit exceeding $3 billion, in addition to, “$100 million or more a year in higher labor costs,” coming as a result of the new contract (WSJ). However, the company secured a big win with the factory closings, which economist Kristin Dziczek tells the Wall Street Journal, “will save billions,” (WSJ). The UAW will now use this template to bargain with two other auto makers whose workers it represents, Ford and Fiat. However, these companies do not wish to close factories, which will complicate those negotiations. (Sadly, if you would like to follow these negotiations, you may have to find another blog, I will most likely only write about them if they are relevant to General Motors).

Naughton notes that the strike, “crippled GM’s U.S. manufacturing operations and rippled through the broader economy,” (WSJ). The disruption cost GM, “roughly 300,000 units of lost vehicle production,” and, “also cut deep for GM’s auto-parts suppliers,” (WSJ). The broader effects of the strike will continue to be felt by General Motors, its suppliers, and the Midwest Economy as a whole.

Image Credit: Wall Street Journal

So, after this whole saga, who won? In some ways both parties won, but in other ways, all parties lost. Such is the nature of compromise. Workers gained the following: “better pay for new hires, a path to full-time status for temps and no changes to the employee health-care contribution … they also will receive a one-time $11,000” bonus for approving the deal (WSJ). The company won because they will move forward with the plant closures. However, the company lost out on billions of dollars of production which hurts its revenue numbers and therefore, its value. This missed production will hurt the broader economy, especially with respect to GM suppliers. This ripple effect will most likely continue to the consumers, which include GM employees represented by the UAW. However, this temporary blip in earnings (both for employees and the company) will hopefully be made up for by the increase in employee wages and the decrease in operating expenses for General Motors.


Week 7: Tentative Deal Reached!

After a brief hiatus, I have returned from break to share some more news about General Motors. On October 16, 2019, Nora Naughton and Mike Colias, our old friends from the Wall Street Journal, reported that a tentative agreement had been reached between negotiators from the UAW and GM. The deal must be approved by a simple majority vote from the UAW members that work at GM, but until then, the strike will continue. Key parts of the deal include plans for GM to invest nearly $8 billion into its US factories, “which would create or preserve about 9,000 jobs,” (WSJ). The company will also invest around $1.3 billion in facilities in Lordstown, Ohio, where GM has an existing plant, “which the company hopes to sell to a startup electric-truck maker,” (WSJ). On the flip side, GM will, “move forward with plans to close or sell three now-idled U.S. factories,” (WSJ). The union also gets major wins, such as: no increase in workers contributions to their health-care payments, a path from temporary worker to full-time employee, and wage and bonus increases.

All of this sounds great, but still requires ratification by union members to end the now month-long strike. Naughton and Colias also wrote that the UAW leadership face a tough sell. This difficulty may be partly due to the fact that, “roughly 42% of GM’s factory workers have never seen an industry downturn and might be a harder sell on any deal that doesn’t fully meet all their demands,” (WSJ). Although General Motors made several important concessions in the deal, they will proceed with plant closure and have not made any, “commitment to relocate Mexico production to the U.S. – a change the UAW had pressed for during talks,” (WSJ).If the United Auto Workers reject the deal, it will hurt both sides even more. According to analysts cited by Naughton and Colias, “by the time final ballots are in on Oct. 25, GM’s losses could,” surpass, “$2.5 billion since the strike began … the average full-time worker will have missed take-home pay of about $6,000,” (WSJ). If the strike is prolonged, these numbers will only grow. Only time will tell, but a tentative deal is better than stalemated negotiations.


Week 5: A Paradigm Shift in the Auto Industry

Although the UAW strike at GM plants has entered a third week, it will still be a while before a resolution is reached. I know I am repeating myself from previous posts, so I will not say too much more on this matter. However, most recently, Nora Naughton and Ben Colias of the Wall Street Journal reported that the two parties are, “dueling over two main issues: how fast to move newer hires up to the top wage and how soon temporary workers should qualify for full employment.” The pair also noted that this is, “now the longest nationwide walkout at GM since 1970.” The good news is that the two sides have “largely settled” the issue of healthcare (WSJ). The strike and negotiations are important to GM despite the fact that labor costs are only about 5% of the cost of making a vehicle because, “it is one of the few cost components the companies can control, labor experts say” (WSJ). Once again, not much has changed in the situation since last week, but I will be sure to update you on any and all changes that occur this week.

Since I have reported the news about the strike this week, I would also like to talk about some analysis of the strike by Daron Gifford of Since electric cars are moving to a more prominent place in America’s motor landscape, they are becoming a point of contention between car making companies and their employees. As Daron Gifford reports, “electric cars have far fewer parts, which means far fewer people are needed to put them together,” (Market Watch). As General Motors responds to the global trend toward electric cars, it will need fewer workers to build its cars. This prospect worries the UAW who is attempting to secure the jobs of its members through these negotiations. Gifford remarks that, “none of this is anyone’s fault.” However, the two sides must work together because they represent the American auto industry. Globally, foreign countries and foreign companies are adopting electric vehicles more quickly than the United States. If the United States were to fall behind in the auto market, that would be a national blow. The automobile was born here under Henry Ford. Detroit gained worldwide fame as the Motor City. Any missteps in the process would contribute to the death of what currently looks like a dying empire: the American auto industry. This strike, which, “looks like a fight for today is actually a fight for future American relevance,” (Market Watch). Hopefully, for their own sakes and the sake of the American car manufacturing sector as a whole, General Motors and the United Auto Workers can work together to solve this problem.

Unfortunately for the UAW, I believe they will have to concede a loss in this battle. The shift to electric vehicles will happen, in my eyes, regardless of the union’s recalcitrance. This shift need not lead to unemployment, it can instead lead to different jobs for the people who currently manufacture cars. Unfortunately for these people, the market changes and a willingness to learn new skills and adapt to new circumstances is the best way to secure one’s job. I hope these people do find new jobs, but I also think they need to, because no matter how hard the UAW fights, these jobs will disappear. Either they disappear over time as General Motors makes the switch to manufacturing electric vehicles, or they disappear all at once if GM is unable to adapt and thus collapses.


Blog Post 4: The Strike Goes On

As the UAW strike at General Motors plants headed into a second week, it is starting to negatively affect the Michigan economy. Although the impact is localized for now, if the strike continues, it could spell trouble. Kris Maher of the Wall Street Journal cites several economists who worry, “Michigan’s economy could be vulnerable to a prolonged strike because it has already been slowing.”  While in past years (2010-2017) an average of 75,000 nonfarm jobs per year, this year, only 3,500 jobs have been added through August. Charles Ballard, as quoted by Kris Maher, notes that the strike adds an, “additional headwind,” with, “the potential to put us [Michigan] into job losses,” (WSJ). This prediction comes with a caveat, “the strike probably would have to last at least a month for that to happen,” (WSJ).

Taken from a Wall Street Journal Article cited below

However, as the strike has already lasted two weeks, it is beginning to put some stress on towns surrounding the plants. The time and money put into, “policing the picket lines and plant entrances is,” detracting from, “patrolling streets,” (WSJ). The owner of a Latina Restaurant near the GM plant in Flint, Michigan has lost “10% to 20%” of the restaurant’s business since the beginning of the strike (WSJ). The owner, Ms. Jeanne Bonner, has had to cut her servers’ hours and says, “It’s affecting everybody … A lot of people’s business is from the shop,” (WSJ). Ms. Bonner is correct, the strike has cost workers “$9.3 million a day,” for both striking workers and others not working due to the strike. For Michigan as a whole, this translates to “about $400,00 in income-tax revenue a day,” (WSJ).

Nora Naughton and Ben Foldy of the Wall Street Journal also reported stories from striking workers who, “said they would miss their first paycheck from the company on Friday,” September 27. Striking workers receive only $250 a week in strike pay, whereas they could be earning roughly $600-1200 per 40 hour week, (WSJ). However, Naughton and Foldy also reported some good news: UAW Vice President Terry Dittes wrote a letter to members on Wednesday in which he gave, “a sign talks were moving into the latter stages of completing a deal that then could be brought to rank-and-file members.” The two sides had settled smaller matters and were turning their attention to the larger disputes, “such as wages, benefits and the use of temporary workers,” (WSJ). However, the Journal also quoted Arthur Schwartz, a former GM labor-relations executive, as saying, “There’s no formula for how long it can take … The tough issues could hang them up for a while.”

The negotiators seem to be entering a critical stage, but it is also likely to be the longest stage of negotiation. However, the strike has been going on long enough for both sides to feel the negative effects. These negative impacts could cause a quicker compromise, or they could cause both sides to dig their heels in, in an attempt to wait out the other side. Unfortunately, I cannot offer the readers of my blog any clarity on this situation. All I can say is that the strike is starting to hurt both sides, and the longer it goes on, the more it will hurt. Both sides will have to weigh their options. For GM, they will have to ask if paying their workers higher wages with more benefits will make up for the profit they are currently losing. For the UAW, they will have to ask if the promise of higher wages and more benefits in the future is worth missing their current wages.

Sources: (Picture taken from this article as well)