General Motors (NYSE:GM) finally broke down on the markets, closing at below $35. GM last visited the $33 range on May 31. But the UAW rejection of GM’s latest offer will lead to a major disruption ahead.
On Oct. 1, the UAW said GM’s offer fell short in many areas. GM could hire replacement workers or close more plants to lower its high operating costs. Its worker costs are unsustainable. With the economy headed lower due to harsher trade conditions between the U.S. and China, GM cannot afford to pay what the UAW demands.
The UAW’s health care demands (to cover 3% more in costs) are modest. The disruption to supply parts and to the business will soon eat into quarterly results. And the longer the strike plays out, the more its competitors like Ford (NYSE:F) and Fiat (NYSE:FCAU) benefit.
The strike will hurt the aluminum and steel markets. As such, investors should avoid those sectors. And on the car market front, investors should either consider buying GM stock when the selling ends or accumulating shares of its competitors. Ford’s pivot away from cars, except the Mustang, and towards high-quality trucks and SUVs will lift the company’s profit margin.
Analysts have a price target of $46.60 on GM stock, over 30% above its recent closing price of $34.91. The average price target on Ford stock is $10.75, 23% above its recent price of $8.74.
Disclosure: The author owns shares of Ford.
