Struck Down
Less than one week after the official ending to a month-long strike between General Motors and its United Auto Workers (UAW), it was announced Gary Jones, president of the UAW union, has been forced into a paid leave of absence amidst a federal corruption investigation.
On Oct. 31, federal court papers accused Jones of splitting up to US$700,000 in union funds with another union official.
For more than two years, federal authorities have been conducting an ongoing investigation on corruption connected to the UAW. The investigation has focused on fraud and the misuse of funds, with 10 people convicted so far, including union leaders and auto company officials.
In August, federal agents allegedly searched Jones’ home, as well as the home of former UAW president Dennis Williams. According to last week’s federal filing, agents seized more than US$32,000 from Jones’ home in Detroit during the search.
According to the UAW, which announced the incoming changes on Saturday, the leave of absence was requested by Jones and took effect Sunday, Nov. 3. Rory Gamble, vice president for the UAW, will take Jones’ place in the interim.
“The UAW is fighting tooth and nail to ensure our members have a brighter future,” Jones said in a press release distributed by the union. “I do not want anything to distract from that mission.”
Parts Provider Power
After delivering what market analysts are calling “blowout” third-quarter results, automotive parts provider LKQ announced that it plans to increase its share repurchase program.
The company announced last week that it plans to buy back an additional $500 million of its shares, increasing its aggregate repurchase program authorization to $1 billion.
Since launching its buyback program in October 2018 the company has bought back 13.2 million shares for $352 million, allowing it to aim for higher earnings-per-share on its remaining units.
LKQ reported a third-quarter profit of 61 cents per share, topping Wall Street’s expectation of 57 cents per share for the parts providers. The company’s revenues for the September quarter came in at $3.15 billion—once again topping the Street’s expectation of $3.12 billion.
On a year-over-year basis, LKQ’s bottom line increase by 8.9 percent. Trading at $33.99 with a market cap of $10.48 billion, LKQ’s stock has gained 43.24 percent this year, beating out the rest of the auto industry’s average by about 13 percent as of Nov. 1.
Merger Meltdown
PSA Group shares fell the most they have in three years last Thursday, following a merger between Fiat Chrysler automobiles and Peugeot.
The merger, which creates one of the world’s largest automakers in terms of volume, saw PSA shares drop 12.9 percent on Thursday—the stock’s biggest fall since June 2016.
According to market analysts, investors appear to be penalizing the French company Peugeot for giving Fiat shareholders what some are seeing as a “generous premium” in the proposed deal.
Fiat Chrysler will pay a special dividend of €5.5 billion ($8 billion) to its shareholders, while the deal will see Peugeot distribute its 46 percent stake (about $4.4 billion) in auto parts maker Faurecia to its shareholders.
On the other hand, Fiat Chrysler shares climbed by eight percent. The merger, which proposes a 50-50 share swap, is predicted to boost the automaker’s valuation.
Under the terms of the deal, Fiat Chrysler was worth nearly 35 percent less than Peugeot before news of the merger broke on Oct. 31. Since the announcement, that gap has closed to just 8.4 percent.
At Thursday’s close, Fiat Chrysler was valued at $18 billion, while Peugeot was valued at around $19.8 billion.
Brexit Bewilderment
Amid the uncertainty over the United Kingdom’s departure from the European Union, one in three U.K. auto companies are cutting jobs, while one in eight have divested from U.K. businesses in a sign that Brexit is already causing major damage to the British auto sector.
A recent survey conducted by the Society of Motor Manufacturers and Traders (SMMT) shows that nearly 14 percent of companies in the U.K. automotive industry, including manufacturers, parts distributors and services companies, have already relocated in the face of Brexit’s continued uncertainty.
Back in 2016, a public vote was held in the U.K. to determine whether the country would leave or remain a part of the European Union. The referendum saw a 72 percent turnout with more than 30 million people voting, and “leave” won by 52 percent to 48 percent.
The exit was originally scheduled for Mar. 29, 2019. It was later pushed to Oct. 31 but, after MPs failed to pass the new Brexit deal into law, the European Union has now agreed to a further extension until Jan. 31, 2020.
The U.K.’s automotive industry has been vocal regarding a no-deal Brexit. Three years ago it fired its first warning shots when Nissan sought reassurances from then-prime minister Theresa May.
Further, SMMT’s survey comes just days after Nissan issued a new warning that its current business model was “unsustainable” in the event of the U.K. failing to reach a deal.
But, according to Mike Hawes, chief executive of SMMT, it is not too late to repair the damage caused by three years of uncertainty. The government must strike a deal with the European Union that includes a transition period to ensure a return to “business as usual”, as well as a long-term trading agreement guaranteeing free trade.
“U.K. jobs, innovation, trading strength and economic growth all depend on the automotive sector, so we urge all parties to get a good deal before its too late,” Hawes told a local news source.
