In just eight and a half days, the labor deal between the United Auto Workers (UAW) and the Detroit-Three automakers is set to expire on September 14th. This looming deadline increases the likelihood of a strike, which has many on Wall Street concerned about its potential costs.
It is crucial to recognize that wages do not exist in isolation. Nonunionized automakers closely examine the wages of their unionized counterparts.
According to Wedbush analyst Dan Ives, this situation poses a significant threat to General Motors (GM) and Ford Motor (F), both of which are currently in the early stages of a momentous decade-long transformation towards electric vehicles (EVs). The implications of these negotiations will play a pivotal role in determining their future success.
Considering that the 313 area code represents Detroit, where GM and Ford are headquartered, along with Stellantis (STLA), the parent company of Chrysler, Ives firmly believes that the timing could not be worse. As GM and Ford strive to catch up with Tesla (TSLA) in EV production, a work stoppage would only exacerbate the uphill battle they already face.
Having recently witnessed the tense atmosphere surrounding the auto industry in Detroit, Ives highlights the immense pressure on the UAW leadership to secure a significant victory in these negotiations—especially after the recent UPS union deal raised further expectations. This latest Teamsters agreement with United Parcel Service (UPS) entails an average annual wage increase of approximately 5% to 6% over the next five years. While specific calculations may be challenging, available data provides a rough estimate of how wages may increase.
Investors should prepare for an upward trend in UAW wages. Over the course of the current contract, inflation has averaged around 4%, whereas wages have only risen by an average of 2% annually. This disparity creates one of the primary reasons why these negotiations are proving to be so challenging.
Labor Strike Looms for U.S. Automakers
Analysts are predicting a possible strike by the United Auto Workers (UAW) union, which could have significant implications for major U.S. automakers. According to CFRA analyst Garrett Nelson, the strike could potentially last for several weeks, causing disruption to production and supply chains.
On the other hand, rising wages are becoming a trend nationwide, and even companies like Tesla are increasing wages to mitigate the risk of unionization. Tesla CEO Elon Musk has even extended an invitation to the UAW to hold a union vote in California.
Despite concerns surrounding the strike, it is worth noting that previous labor disputes have not had long-lasting negative impacts. GM faced a month-long strike in 2019, which did not cripple the company or significantly affect its profitability.
Not all analysts on Wall Street share the same worries either. Both Adam Jonas from Morgan Stanley and John Murphy from BofA Securities view the dip in automaker stocks as a buying opportunity. Historically, these stocks tend to recover after labor fears subside during contract negotiations.
However, it is evident that labor concerns are putting pressure on automaker stocks in the current negotiation season. Over the past month, shares of GM, Ford, and Stellantis have declined by approximately 10%, 7%, and 7% respectively. In comparison, the S&P 500 remains relatively unchanged, while the Dow Jones Industrial Average has experienced a 2% decrease.
While there is potential for a recovery in stock prices once an agreement is reached, there is no guarantee that such an agreement will be reached before the contract expiration on September 14.
As the negotiation period unfolds, market observers are keenly watching the developments in the automotive industry.
