Barra’s Rosy Proclamations Should Embolden UAW

General Motors’ CEO, Mary Barra, continued to project a bright future for the automaker during a recent presentation to shareholders. The prognostication gave a rosy appraisement for financial estimates as far out as 2020, when Barra says GM will have between $9 billion to $10 billion in free cash flow. Her crystal ball also shows that electric cars will compete with gas-powered vehicles by 2022 and that global car sales will increase by 50% to 130 million by the year 2030.

It is very difficult to predict future profitability in the very cyclical auto industry, but GM is desperate to give its shareholders some hope. GM share price has far underperformed broader markets since the company’s 2010 IPO and still trades below the $33 offering price.  The S&P 500 index has gone up by about 70% compared to GM’s decline since trading began. Putting aside the fact that 2020 cash flow projections should be taken with a grain of salt, Barra’s optimistic outlook comes at a time when the company may be going into tough negotiations with the UAW and now puts the company at a further disadvantage.

Car sales for GM and the rest of the industry continue to sizzle. Barra raised earnings estimates to between $5 and $5.50 a share in 2016. The UAW has every right to expect to share in the profitability and will be looking for a large slice of the pie. Barra has now made it even tougher for GM to make an argument that it cannot afford to give the UAW their due.

The UAW has shown that it means business with its members rejecting a proposed contract with Fiat Chrysler Automobiles and a workers’ strike is becoming more of a possibility. It would have been prudent for Barra to address the cyclicality and uncertainty of the auto industry as opposed to blowing the trumpet and proclaiming how great the company is doing if she wished to help give shareholders a leg up in the UAW negotiations. It may just be that GM’s loyalty lies more with its UAW and political connections then it does with shareholders.

GM has always seemed to be more concerned with politically based goals than with profits. Just witness all the time and money hyping the money-losing electric car, the Chevy Volt, which President Obama has espoused as his favorite car. In fact, the President has said that he will be buying one in less than two years.

It is also no secret that the UAW has a cozy relationship with the Obama Administration. After getting favorable treatment in the Obama-orchestrated 2009 bankruptcy process (as opposed to other creditors like GM bondholders who got hosed), the UAW came out in force to help with Obama’s 2012 re-election bid. Given the recent positive outlook for GM and the industry, it is hard to foresee a scenario where the UAW does not come out as a winner in negotiations with GM and other automakers.

It is hard to predict how profitable GM will be five years from now, as Ms. Barra has done. Does anyone think that GM would have predicted in 2004 that they would be facing a bankruptcy five years later and needing $50 billion of taxpayer money to survive? Ironically, it was poor management and high UAW labor costs that drove the company into that bankruptcy. It now appears that GM and its shareholders will again be burdened with both.

Mark Modica is an NLPC Associate Fellow.