The automotive giants, General Motors and Jeep’s manufacturer, Stellantis, are set to meet with United Auto Workers representatives today in hopes of brokering a deal to align their contracts parallel to their industry competitor, Ford.
After a sweeping workers’ strike that saw nearly 17,000 Ford employees on the picket lines, a swift resolution resulted in their return to the assembly line. It is now crucial for these 57,000 workers to lend their approval to the newly drawn up compact.
This agreement serves as a precedent in a high stakes game. A failure to adhere to this established blueprint by General Motors and Stellantis may provoke the UAW President, Shawn Fain to institute partial strikes at additional factories, a pattern which began on September 15th, warns Art Wheaton of Cornell University’s labor studies division. An assertion strengthened by Wheaton’s belief that Fain is unlikely to concede any advancements made in the Ford deal.
Uncontested strikes stand to inflict noteworthy financial damage on both companies, particularly General Motors, with its profitable pickup truck plants susceptible to shut down in the heartland cities of Fort Wayne, Indiana and Flint, Michigan.
Likewise, Stellantis is bleeding money as a result of the continuing strikes, and may be yearning for their swift conclusion. This, despite uncertainties concerning whether Ford’s workers will ratify the pending contract.
General Motors and Stellantis are racing against a financial clock, the former divulging losses of approximately $200 million per week due to the ongoing strike. This loss includes the implications from the strike extending to a highly lucrative factory based in Arlington, Texas, responsible for rolling out large truck-based SUVs such as the Chevrolet Tahoe.
The proposed Ford deal, subject to approval from local union leaders and members, promises substantial benefits for the workforce. Top-tier assembly plant workers are set to receive a 25% pay increase over the life of the contract, topping over $40 per hour at the close of the contract in April 2028. This, in addition to the termination of some wage tiers, pay raises, an expedited journey to full-time status for temporary workers, a lift in 401(k) contributions, and pension increases.
Continuous factory transitions from gasoline-fueled to battery powered vehicles make General Motors the next likely candidate to reach a settlement. An agreement has been reached on the inclusion of new electric vehicle battery factories in the UAW’s national contract, resulting in their unionization. This is seen by the UAW as a step toward sustained job security in the transforming auto industry landscape.
Numerous companies, amongst them Tesla and Toyota, are reluctant to absorb the substantial labor costs that could result in escalation in vehicle prices. The effects of these factors were evident from Ford’s third-quarter earnings conference call. The six-week strike cost Ford an estimated production of 80,000 vehicles and reduced their full-year pretax earnings by $1.3 billion. With plans for cuts in place, the impact of an increase in labor costs per vehicle of between $850 to $900 on consumers is still uncertain.
Ford has since postponed their 2023 projections due to uncertainties caused by the workers’ strike which has induced doubt among parts suppliers and in the resumption of production at closed Ford factories.
As echoed by CFRA analyst Garrett Nelson, the weight of the contract’s costs on profitability and competitiveness is significant. An earlier study this month by Moody’s Investor Services projected annual labor costs to rise by $1.1 billion for Stellantis, $1.2 billion for GM, and $1.4 billion for Ford in the concluding year of the contract, assuming a 20% increase in hourly labor costs.
In contrast, Wheaton suggests that with the hefty profits the companies are currently raking in, they are well-positioned to bear the higher labor costs, which he estimates lie between 6% to 8% of the cost of a vehicle.