
The ongoing tussle between the United Auto Workers (UAW) and the big three Detroit automakers – Ford, General Motors, and Stellantis is like a thick fog that’s clouding the vision of investors.
On one side, there are claims of corporate greed, and on the other, an insatiable demand for higher wages.
The truth, however, may lie somewhere in between these extremes.
The drama intensified last Friday when UAW broadened its strike against the automotive giants.
This marks the second expansion of the strike since it was initiated at three facilities on September 15.
The tension on the Detroit auto battlefront has been likened to “watching a slow-moving car crash” by Wedbush analyst Dan Ives.
Amidst this escalating conflict, there are estimates swirling around that the union’s demands could potentially inflate the price tag on electric vehicles (EVs) manufactured by the Detroit trio by a whopping $3,000 to $5,000.
While this number sent shivers down the spines of many, Ford CEO Jim Farley did not entirely dismiss these figures during a recent media call.
He pointed out that these dire projections are based on the union’s ambitious initial demands, which included a sizable 40% wage hike, better retirement benefits, and a shorter 32-hour work week with pay for 40 hours.
Farley voiced his disdain for the expansion of the UAW strike, labeling it as “grossly irresponsible”.
His comments were met with a sharp retort from UAW President Shawn Fain, who accused Farley of misrepresenting the state of negotiations.
The math is quite alarming.
If we take the highest estimate of a $5,000 cost increase per car sold, it totals a hefty $35 billion for the Detroit-Three, based on their sales of about seven million vehicles in North America in 2022.
This amounts to an eye-watering $243,000 per UAW member, considering there are about 145,000 UAW members at these companies.
The total compensation bill for the UAW, inclusive of wages and benefits, circles around $20 billion, which translates to nearly $140,000 a year per member.
Analysts are closely scrutinizing the situation, with the focus primarily on EVs, as the automotive giants are striving to manufacture them profitably.
The cited range of $3,000 to $5,000 per EV is seen as a share of the burden that would be shouldered by the EV divisions.
However, Wells Fargo analyst Colin Langan provides a slightly different perspective, estimating a lesser impact of about $300 per vehicle sold in North America, based on the difference between initial offers from UAW and the automakers.
The bargaining table is laden with concerns beyond just the current wage demands.
Rising wages have in the past pushed the production of sedans overseas, as per auto executives.
While Ford and GM have trimmed down sedan production in North America, their competitors like Toyota and Honda continue to produce in the region, albeit not under UAW representation.
The wage differential is substantial, with Detroit-Three paying UAW employees about $10 to $15 more per hour compared to what Toyota or Honda pays their workers.
This wage gap is cited as a significant factor that’s compelling GM, Ford, and Stellantis to veer towards bigger, more expensive vehicles over time.
For instance, a higher-priced truck like the Ford F-150 demands less labor per vehicle compared to a lower-priced Toyota Corolla.
The concern over competitiveness looms large, especially as Detroit-Three has seen a significant market share erosion of 30 percentage points to foreign automakers over the past three decades.
The road ahead seems rugged.
The U.S. automakers are striving to find a sweet spot between producing low-cost EVs to stay in the race with Tesla and Rivian and addressing the escalating labor costs.
The negotiations are indeed a tightrope walk, particularly in a scenario where EV investment is surging amidst rising inflation and stagnant wage growth.
As the battle rages on, clarity on wage increases and total compensation will emerge when a deal is nearing.
At that juncture, investors will be better positioned to assess the impact on stocks.
The ripple effects of the labor issues have already been felt in the market, with shares of Ford and GM plummeting about 17% and 14% respectively since July.
On the flip side, Stellantis stock has climbed 9%, possibly due to its more global footprint and favorable trading metrics.
The UAW wage hike demand is indeed a high-stakes game, with repercussions that could reverberate through the auto industry, affecting vehicle prices, market shares, and ultimately, the pockets of consumers.