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U.S. Auto Strikes Continue

Plus500 | Tuesday 19 September 2023

The American auto industry is being shaken by labor disputes as workers strike at a series of production facilities across the Midwest. Let’s take a closer look at how this situation is developing as negotiations between the opposing sides continue:

An image of cars

What Is the UAW?

Since its 1935 founding in Detroit, Michigan, the United Auto Workers (UAW) union has exerted significant influence over the North American vehicle industry, with nearly a million active and retired members and over $1 billion in assets as of 2022. Throughout the 1930s and 40s, the UAW organised strikes, winning recognition of the union as labourers’ official representative as well as improved working conditions for workers across the industry. Despite this long history of activism, on September 15th, history was made as a simultaneous strike against the ‘big three’ automakers began. (Source:Wikipedia)

Attempts at Compromise

Last Friday, the UAW initiated a strike at three car plants in the United States. The three facilities in question, GM's Wentzville, Missouri, Stellantis' Toledo, Ohio, and Ford's Wayne, Michigan plants, are primarily focused on the production of high-value trucks and SUVs like Ford Broncos, Jeep Wranglers, Chevrolet mid-size pickups, and GMC vans. In response, Ford laid 600 non-striking employees on a temporary basis.

There has been a significant gap between the UAW and automakers with regard to the negotiation of new labor agreements since the previous contract’s expiration on September 14th. The UAW, representing 150,000 autoworkers, opted for targeted initiatives rather than a complete shutdown.

Negotiations resumed with Ford (F), GM (GM), and Stellantis (STLA), the latter of which improved its offer to include a 20% pay raise over a four-and-a-half-year contract term, including an immediate 10% increment. This matches proposals already on the table from Ford and GM but falls short of the UAW's desired hourly pay increase of around 40%, which they recently adjusted to the mid-30% range.

UAW is financially prepared for an extended strike, boasting approximately $825 million in its strike fund and increased strike pay. Analysts suggest that a two-week auto strike could impact GM's profits by $1.3 billion and Ford's by $1.6 billion. Negotiations are ongoing, aiming to bridge the gap between the union and the automakers' positions.

Prior Struggles

The strike is estimated by many experts to have the potential to significantly damage the bottom lines of the above companies, but these shares may already have been in for rough times even before the labor dispute.

Major American automakers are having difficulty in making the transition to electric vehicles; according to some estimates, Ford’s losses stemming from its EV unit could reach above $4 billion this year. General Motors is also struggling to see profits from its proprietary electric vehicles, and the difficulty in coming to a new contract with United Auto Workers is set to cut deeply into the gas-fueled cars that fund EV ventures.

Ford shares dropped 2.3% over the course of the trading day on the 18th, while General Motors and Stellantis saw falls of over 1.7% and 1.5% respectively by the ring of the closing bell. With any potential contract with striking workers likely to include wage increases and thus reduce net revenues, the light at the end of the tunnel may be a ways off. On the other hand, one major name seems poised to come out ahead. 

While Tesla (TSLA) stocks saw a drop of more than 3.3% yesterday, the firm could be set to sweep the electric vehicle market as its rivals’ production hits the skids. Furthermore, given that Tesla employees are not included in the UAW strike, the gap in labor costs between these automakers could grow.

Conclusion

As the global vehicle industry shifts in response to varying market incentives, the road ahead for these firms is far from clear. Whatever the final outcome of the organized labor negotiations turns out to be, major U.S. automakers will have to grapple with the shift toward electric vehicles and overseas competition in order to secure future profits.


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