The UAW strike began on Sept. 15. The group recently shut down the Ford Motor plant in Kentucky, its largest factory worldwide, with nearly 9,000 workers joining the Stand Up Strike.
In an interview for Investor's Business Daily's Industry Insights show, Mike Colias from The Wall Street Journal broke down the United Auto Workers strikers' demands, which automakers are impacted and what a resolution could mean for the economics of the auto industry.
Demands Of The Detroit Three
IBD: What exactly are the UAW strikers' demands and which automakers are impacted?
Mike Colias: These are the Detroit Three companies. It's General Motors, Ford and Stellantis. They're the ones that have the unionized workforce in the United States. The union, I think, feels like it's got a strong hand. We've seen this across the country where unions have gone on strike. They've gotten big, big pay raises and big concessions in contract negotiations.
I think the fact that inflation has been really high in the last few years — that's hurt their members. You've had a labor shortage that's going to help the union's cause, and the companies have been really profitable post-pandemic. So I think the union felt like it could go big. It came out asking for a 40% wage increase over the four-year contract, as well as a bunch of other things- cost of living adjustments and better retirement pay.
The big thing is job security, too. They're worried about losing jobs because of the electric vehicle transition, and there's a lot going on there. There are some concerns around whether or not they're going to lose members over time.
Contract More Costly Than Expected
IBD: Theoretically, if all UAW strike demands are met, what would that do to the economics of the auto industry?
Mike Colias: These companies are concerned. The strikes we're into the fifth week now. The companies feel like they've already given at the table more than they expected. I think this contract, once this thing does get settled, is going to be more costly than they expected. I've seen estimates from analysts of between a billion and a billion and a half dollars of extra labor cost per year per year for the three companies. It's manageable. They can offset that. At the same time, it puts them at a tough cost competitive standpoint with Tesla. The Asian automakers like Toyota and Hyundai, they're not unionized in the U.S. So I think that's kind of the bottom line argument from the companies is, look, we've got a really strong offer on the table here. But if we go much more than this, it's going to make us less competitive. Are we going to be able to afford to keep jobs in the U.S.? Are we going to be able to win against these other companies? You could win the battle, but lose the war because we're all in this together.
Higher Car Prices To Come?
IBD: What are the ripple effects of the UAW strike — higher auto prices?
Mike Colias: We're talking about the Detroit Three's roughly half of the market in the US. Right now, these other companies aren't affected. The Toyotas, and Honda's and Kia's of the world. Over time, I think some of this cost inflation is going to naturally creep over to them. They have lower labor costs. Now, I think when their workers see the Detroit companies just gave their people a 25% increase, or whatever it ends up being, that could cause some inflation there.
I think the unions have designs to organize some of those plants. They have not been successful in the past doing that. So I don't know how far that will get. But I think in general we are probably going to see some labor inflation across the board in the industry, and that could lead to price increases over time. Then again, we've had we've seen huge price increases over the last three years, partly due to some vehicle shortage supply chain related, but we're bumping up at a pretty high ceiling right now in terms of car pricing and the outcome of this strike.
Affording New UAW Strike Demands
IBD: If all of the UAW strike demands are met, is this something that could put the auto companies out of business?
Mike Colias: I don't think for the car companies — it's not an immediate existential question for them right now. I think they can continue to compete where they do now, which is internal combustion vehicles. Big trucks, SUVs. That's where they make their money. There's lots of margin in those things. They can cover the costs even if these labor expenses are going to be a lot more than they expected going into these contract talks. I think the bigger concern is what they're trying to do right now is pull off this transition to electric vehicles. All three of these companies, GM, Ford and Stellantis, are spending tens of billions of dollars to convert to electric cars, as are most other automakers. But the issue is you've got Tesla out there now, which is already more profitable, already has lower labor costs, is making these cars at scale. And so the concern for the companies is, look, Tesla has so many different cost advantages right now. This is just yet one other thing that's going to put us further behind. Does this make it harder to win in that EV transition? I'd say definitely.
Tesla's Strike Advantage
IBD: Do these strikes give nonunion automakers, like Tesla, a leg up?
Mike Colias: We think Tesla, they don't provide this publicly, but we think their labor costs all in is something around 50 bucks an hour including benefits and everything. Even before this contract goes through the Detroit Three or more in the low sixties. So that's going to bump up, you know, above 70. That's a pretty big disparity between what Tesla has to pay its workers and these companies. Tesla already has advantages in terms of battery supply. They've vertically integrated all this stuff to scale electric vehicles. These companies are just in the process of that. So I think at the end of the day, another advantage, is Tesla doesn't have dealerships. These companies have dealerships, which can be an advantage in some ways, but also it's more costly. Tesla is well positioned for the electric vehicle transition. If that transition happens at a cadence where a lot of people think …. If it's slower than expected, then the traditional automakers, I think, have a bit of an advantage there.
When Will It End?
IBD: Is there a likely resolution for the UAW strike, or are the two groups still far away from each other at the negotiation table?
Mike Colias: There's been a lot of back and forth and a war of words between Ford and the union in the last week because the most recent strike action was taking down Ford's truck plant in Louisville, Kentucky. It's their most profitable plant, their largest, almost 9,000 employees spent a lot of ripple effects and layoffs related to that. Ford executives are really angry about this, but I actually think it could be a sign that they're close. I think the union with this strike strategy started small and then kind of ratcheted up from there instead of just going all out and striking every factory at once. So I think what you're seeing is the union saying, OK, we're going after your most important factory. This is kind of like the highest escalation short of an all-out strike. Remember, these union leaders have to go present whatever deal they make with the company to the workers. They have to get the workers to vote on it. You don't want to go to the workers and have them shoot it down. So this is a signal from the union leadership that, look, you know, we took them to the brink. You know, this is the best deal we can bring you.
Automaker Stocks React
IBD: How are automaker stocks faring, and how might they react as the negotiations for the UAW Strike play out?
Mike Colias: The thing to remember about automaker stocks is this is an unloved class of stock. Right? These are highly capital intensive, low margin. They're regulated labor issues as we're seeing here. GM, for example, its stock price is below what it was in 2010 when it had its IPO after its bankruptcy. So it's been a slog for these companies. The strike hasn't helped. It hasn't been a huge hit, I think, for GM or both, down roughly 10% since it started. I think Stellantis is maybe up even, and they've had a good year. I think that's partly because they're not as tied to the U.S. market. But so far, I think investors are rolling with what's gone on because it hasn't been an all-out strike. The hits have been relatively modest. Now that's going to change with Ford's biggest plant being down, and the more plants that go down, I think it's going to pressure the stock. I think the biggest thing is will the investors be OK with whatever deal they walk out of this with because the strike is less of a concern to them than the baking in a fixed cost going forward, which is what this labor contract is going to do. And if that goes too far, I think it's going to hurt the companies.
