Unions were developed to protect workers’ rights, ensure safe working conditions, and keep benefits and pay in line with the increases in the cost of living. In the global marketplace, however, these unions are affecting a business's bottom line in a way that in the end will not only lower revenue but hurt the company’s long-term ability to meet union demands. When a contract negotiation between General Motors Company (NYSE: GM) and the United Auto Workers (UAW) union fails and strike action takes place it hurts the automaker in a number of ways.

Revenue Decline

One of the first and most obvious ways that a strike action by unionized workers can affect GM’s business is a direct loss of revenue. Auto manufacturers are dependent on a lean manufacturing system, otherwise known as just-in-time manufacturing. This system is meant to ensure the best productivity cycle of a product including the efficient movement of inventory in and out of a factory.

When auto workers, including line workers or parts manufacturers, go on strike, it has a profound effect on the overall capability of the company to produce vehicles for sale within its dealer network across America. Dealer networks attempt to alleviate this by providing local services for vehicles in other areas and have them transported to a local buyer. Yet, in the end, a slowdown in production will inevitably lead to a slowdown in revenue as consumers are left with less choice, often pushing them to buy from other automakers. Part of this decision may also be based on the brotherhood mentality of unionized workers. An example study of the Fiat Chrysler Automobiles N.V. (NYSE: FCAU) in the fall of 2015 revealed that such a strike would cost this smaller automaker $175 million per day of production shutdown, not including parts and other labor expenses. The average strike length would have cost Fiat Chrysler $1 billion in lost revenues.

Loss of Market Share

Another major issue, especially in 2015 and 2016, is that any strike also causes a loss of market share. In 1998, the last major GM auto worker strike to be studied not only cost the company $809 million; it also cost the auto manufacturer market share of 10% domestically in the year following the strike and almost 2.5% global market share for the year. The strike, which lasted eight weeks, had an enormous impact on sales for the earnings quarter of the strike, but it had lasting impacts on market share for the next year as well.

With the Volkswagen AG (XETRA: VOW3.DE) emission scandal in 2015, there was a market share vacuum created that other auto manufacturers are hoping to fill. If GM were to suffer from a strike, the expected growth in market share would be gained by another maker that was not suffering from a strike.

Productivity Backlog

Lastly, a complete general strike, the largest that could affect GM, would include over 60,000 employees in the United States at assembly and parts plants. This would lead to an inevitable production backlog. Auto manufacturers usually only have a certain number of finished products for sale, typically between 30-75 days of automobile inventory. Consumers, even those loyal to the GM brand will only wait so long before purchasing from another manufacturer. A strike would close assembly and parts plants within GM, and it would cause thousands of feeder plants that provide parts to GM to either slow production or close until the strike ended.

Union negotiations use a strike action as a last resort; yet in the event that the two sides cannot come to an agreement, it serves as a real incentive for the employer to stop the harm that a strike can do to the company in real financial terms.

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