Chicago, IL – September 13, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: General Motors GM, Ford F and Stellantis STLA.
It’s just three days to go before the expiration of the contract between the Detroit Three automakers — General Motors, Ford and Stellantis — and the United Auto Workers (UAW). The current UAW contract expires this Thursday (on Sep 14) at 11:59 p.m. and no agreement has been reached yet. The clock is ticking fast and the threat of a potential strike looms large.
So, how do things stand now as the countdown draws near? What does the UAW want and are the demands overly aggressive? What do the counterproposals from the Detroit Three entail, and how is the UAW reacting to them? And how would the UAW strike, should it come to pass (the chances of which are quite high), affect the Detroit 3, the auto industry in general and the economy as a whole? And lastly, why should investors care? Let’s discuss.
The UAW had been demanding a 40% pay raise for over four years, which eventually translates to a 46% hike owing to the compounding effect of the raises, according to Detroit automakers. This would have raised the wage of a top-scale assembly plant worker from the current $32 per hour to approximately $47. However, over the weekend, the UAW union moderated its stance on pay-increase demands, revising its request to a 36% raise, down from the initial 40%.
Apart from a 36% wage hike over the next four years, the UAW also calls for a reduced 32-hour workweek, the elimination of the tiered wage system, the restoration of cost-of-living adjustments, defined pension benefits for workers and the reestablishment of retiree medical benefits, among other requests.
Currently, UAW workers hired after 2007 lack defined-benefit pensions and receive reduced health benefits. The union has sacrificed pay raises and cost-of-living increases over the years to aid cost control. Top-scale assembly workers earn $32.32 per hour, while temporary workers start at just under $17.
Also, as Detroit automakers transition to electric vehicles (EVs), the UAW seeks union representation in EV battery plants. They argue that workers transitioning from engine and transmission manufacturing to EV production should receive their current top assembly-line wages, which currently stand at around $32 per hour, without any job losses due to technological shifts.
It should be noted that Shawn Fain, UAW president, admits that union's demands are "audacious." However, given the Big Three automakers' $21 billion profit in the first half of 2023 and $250 billion over the past decade, he contends that automakers can afford significant pay raises. Fain emphasized that these massive profits haven't translated to adequate pay or benefits for auto workers compared to executives and believes record profits should result in record contracts.
As the first to submit an offer, Ford proposed a cumulative 10% pay increase over the four-year contract, along with lump-sum payments to counter inflation. It claimed this would boost average annual pay, including overtime and bonuses, from $78,000 last year to more than $92,000 in the first year of the contract. Additionally, Ford eliminated wage tiers and raised the starting pay for temporary workers to $20 per hour, a 20% increase.
GM's proposal included a 10% wage increase, supplemented by two 3% lump-sum payments. The offer entailed a $5,500 ratification bonus, a $6,000 inflation-recognition payment and $5,000 in inflation-protection bonuses over the contract's duration. In-progress employees could see a potential 56% increase over four years, and temporary workers were offered a 20% wage hike to approximately $20 per hour.
Stellantis, the last to present its proposal, offered UAW workers a 14.5% total wage increase during the contract, without lump sums. The company did include a one-time $6,000 "inflation protection payment" in the first year and $4,500 in inflation protection payments over the contract's final three years. While these cost-of-living adjustments (COLA) met a UAW request, the union insisted on COLA being integrated into contracts rather than as one-time payments. Part-time "supplemental" workers were promised a wage increase to a starting rate of $20 per hour, a 25% raise.
While all proposals included contract-ratification bonuses, none of them agreed upon the UAW's request for a reduced workweek.Fain expressed strong dissatisfaction with F and GM’s offers, labeling them "insulting" and far from equitable for American autoworkers. STLA’s offer too didn’t go down well with Fain, with the UAW publicly voicing its criticism of the proposal, citing concerns about the preservation of tiered compensation, insufficient wage increases, the absence of COLA, and the lack of an improved profit-sharing plan, among other issues.
Fain describes talks with the Detroit Three as slow but ongoing, emphasizing the union's desire to avoid a strike. He expressed readiness for round-the-clock negotiations, despite receiving no response for over a month. However, Fain remains committed to the needs of some odd 150,000 UAW-represented autoworkers, warning that he's prepared to call a historic strike if demands go unmet.
Although the UAW reduced its pay increase request from 40% to 36%, Detroit automakers remain unimpressed with the offer. The automakers still find the union's demands costly, citing their substantial upcoming expenses for combustion-engine and electric vehicle production, including battery and assembly plant construction. They argue that an overly generous UAW contract could raise vehicle retail prices, making Detroit automakers less competitive against European and Asian rivals.
As negotiations near their deadline, a substantial gap persists between the companies and the union. Many industry observers anticipate an imminent strike, with the UAW potentially opting to strike one, two or all three automakers.
The UAW strike could not only reverberate through the Detroit 3 but also significantly impact the wider auto industry and even the U.S. economy as a whole.
Lest we forget, it isn’t the first time the UAW has flexed its muscles. The 2019 GM strike lasted 40 days and resulted in a staggering loss of $3.6 billion for the company. Such statistics underline the profound economic implications a strike can bring. Per estimates from the Anderson Economic Group, even a 10-day strike against all three automotive giants could result in losses nearing a billion dollars.
In broader terms, this equates to a potential hit of $5.6 billion to the U.S. GDP in just 10 days. This could plunge auto-reliant states, such as Michigan, into a recession, affecting countless livelihoods and destabilizing the region's economic fabric. Even a 10-day strike could take a huge economic toll.
The logistics and transportation sectors — which serve as the backbone of the auto supply chain — also stand at risk. Many firms in these sectors owe their continuous operations to the Detroit 3 and their suppliers. Consequently, a work stoppage at any of these auto behemoths could have dire consequences, potentially stalling businesses that hinge on the seamless flow of auto parts and vehicles. A UAW strike could bring significant portions of this industry to a standstill.
Recent events have already shown the vulnerabilities inherent in the logistics industry. The bankruptcy of Yellow Corp. in August resulted in job losses for 30,000 workers and highlighted the sector's susceptibility. If the UAW does move forward with the strike, it would add more strain to an already delicate situation, with long-term implications for stability and growth.
The strike may lead to an increase in vehicle prices, discouraging potential customers from making vehicle purchases due to the already high borrowing costs. A significant concern stems from the available vehicle supply. Sam Fiorani, an analyst at AutoForecast Solutions, stated that automakers had about 1.96 million vehicles available at the end of July, a sharp decline from the 4 million before the pandemic. If the strike extends beyond three weeks, the reduced supply could result in an escalation in vehicle prices and a potential shift in consumer preference toward non-union brands.
As the expiration of the UAW contracts with the Detroit 3 automakers approaches, the industry stands at a crossroads. The repercussions of not reaching an accord would send ripple effects well beyond the automotive sector, emphasizing the pressing need for collaborative resolution. A balance needs to be struck, one where workers feel valued and companies remain profitable. This delicate equilibrium underscores the importance of collaboration and understanding between both parties. The outcome of the ongoing negotiations will determine the trajectory for many workers, businesses and even states in the coming months.
Amid potential labor unrest, what should investors do with stocks of GM, F and STLA? Notable analyst John Murphy has highlighted that F and GM stocks are currently priced for a strike. Legacy automakers like F, GM and STLA, having weathered numerous challenges over the years, remain fundamentally robust. For long-term investors, current stock prices, even with the looming threat of a strike, represent a promising entry point. Should a strike ensue and push these stocks lower, it might present an even more attractive buying opportunity. In essence, while short-term challenges lie ahead, the long-term prospects remain promising for the Detroit 3.
GM, F and STLA currently carry a Zacks Rank #3 (Hold), each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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