Singapore Markets open in 3 hrs 38 mins

Auto Stock Roundup: General Motors Workers Strike, Winnebago's Newmar Buyout & More

Zacks Equity Research

The United Auto Workers’ (UAW) nationwide strike against General Motors GM since Sunday midnight has been making headlines. The strike has reached the third day, with no signs of immediate settlement. If the strike lasts for a few more days, it may likely lead to a shutdown of General Motors’ factories in Canada and Mexico. A prolonged strike will destabilize the company and may hurt the broader U.S. economy as well.

Further, General Motors and another auto biggie Ford F issued vehicle recalls recently. Auto recalls have been on the rise in recent years and the issue is unlikely to wane anytime soon. Advanced technologies used in vehicles are resulting in more complex units, software errors and new dangers, in turn increasing recalls.

(Read the Last Auto Stock Roundup here).

Recap of the Week’s Most Important Stories

1. The UAW strike against General Motors, with around 48,000 workers picketing at the U.S. auto giant’s factories, marks the first major stoppage of work at the company in the last 12 years. Reportedly, the strike has led to the shutdown of 33 manufacturing plants in nine states across the United States and 22 parts-distribution warehouses. The UAW called a strike against the U.S. auto giant after the country’s labor contract negotiations hit an impasse.

The labor union wants the company to boost workers’ pay and profit-sharing bonuses. In addition to fair wages, the UAW is also asking for affordable and quality health care benefits as well as job security for the workers.While the labor union is of the opinion that General Motors has been largely unresponsive to its demands, the U.S. auto giant claims that it has presented a solid offer to improve workers’ wages and benefits. The company intends to make $7 billion worth of factory investments in the United States and create more than 5,400 additional jobs.

Although negotiations between General Motors and the UAW are underway, there’s no guarantee of a quick resolution (Read more: General Motors Workers Strike: What You Need to Know).

General Motors currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2. In a bid to boost its portfolio, Winnebago Industries, Inc. WGO recently inked a deal to acquire Indiana-based recreational vehicle manufacturer, Newmar Corporation, for $344 million. Upon completion of the deal, which is scheduled in first-quarter fiscal 2020, Newmar shareholders will hold approximately 6% of Winnebago’s outstanding shares. The complementary asset base has been the key driver of the deal.The Newmar buyout adds high-end motorized products to the existing Winnebago brand lineup.

The combined entity will have approximately $2.6 billion in pro-forma revenuesand lead to a reduction in debt. The deal is likely to be immediately accretive to its free cash flow and fiscal 2020 EPS, and result in cost savings of at least $5 million annually for a period of three years. (Read more: Winnebago Boosts RV Portfolio with $344M Newmar Buyout)

3. General Motors issued a recall of 3.46 million U.S. pickup trucks and SUVs to fix a vacuum pump issue, which is causing a brake-related problem. The recall affects Chevrolet Silverado, GMC Sierra and Yukon, Chevy Suburban and Tahoe, as well as Cadillac Escalade vehicles from the 2014-2018 model years.

The U.S. auto giant revealed that the pump in power-assist brakes can put out less vacuum power than needed, thereby resulting in a longer stopping distance and the risk of a crash. In order to fix this issue, General Motors is working on a corrective action involving reprogramming of the Electronic Brake Control Module with a new calibration. This will improve the way the system utilizes the hydraulic brake boost assist function when vacuum assist is depleted. (Read more: General Motors Recalls 3.4M Vehicles to Fix Brake Problem)

4. Ford recently issued a recall of roughly 311,907 Ford Explorer vehicles in the United States, 23,380 in Canada and 3,045 in Mexico, to fix seat frames with sharp edges. The affected vehicles were manufactured in the Chicago Assembly Plant from Feb 13, 2016, through Oct 25, 2017.

The recall only affects models with powered seats. The U.S. auto giant revealed that the affected vehicles could harm owners when they reach between the power front seat and center console.Ford will require owners to bring Explorer vehicles to a dealer who will install flocked tape over the sharp edges and tabs at no added cost. (Read more: Ford Recalls Explorer SUVs to Repair Sharp Seat Frame Edges).

5. Toyota Motor Corporation TM stated that it will invest $391 million in its truck assembly facility in San Antonio, TX. The move is part of the company’s $13-billion investment commitment in its U.S. operations over five years through 2021. The fund will be used for installing advanced technologies that would increase the plant’s capabilities, which will make it more competitive and efficient in the years to come.This will be Toyota’s third investment at the San Antonio plant. The facility assembles Tundra (full-size) and Tacoma (half-size) pickup trucks. (Read more: Toyota Invests $391 Million at San Antonio Facility)

Price Performance

The following table shows the price movement of some of the major auto players over the past week and six-month period.

In the past week, most of the stocks have declined, with General Motors and Advance Auto Parts, Inc. AAP witnessing the maximum loss. In the past six months, Tesla TSLA has declined the most, while AutoZone, Inc. AZO has recorded the maximum gain.

Company

Last Week

Last 6 Months

GM

-3.2%

3.2%

F

-2%

8.4%

TSLA

-1.3%

-10.9%

TM

1.1%

14.5%

HMC

0.1%

-3.3%

HOG

-3%

-1.0%

AAP

-3.2%

-6.4%

AZO

0.4%

18.4%

What’s Next in the Auto Space?

Industry participants will keep a close watch on the ongoing UAW strike against General Motors. As of now, both warring sides — the management and labor union — are waiting for the other side to blink first. Investors interested in the auto sector would be closely tracking earnings releases of AutoZone and Carmax, which will be unveiling quarterly results in the coming week.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

Click to get this free report General Motors Company (GM) : Free Stock Analysis Report Tesla, Inc. (TSLA) : Free Stock Analysis Report Ford Motor Company (F) : Free Stock Analysis Report Toyota Motor Corporation (TM) : Free Stock Analysis Report Advance Auto Parts, Inc. (AAP) : Free Stock Analysis Report AutoZone, Inc. (AZO) : Free Stock Analysis Report Winnebago Industries, Inc. (WGO) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research