Talks Between Unionized Workers and Big Three Automakers

Talks between unionized workers and the Big Three auto makers are progressing slowly as the current four-year contract’s September 14 expiration date approaches. While recent labor successes have been achieved, concerns surrounding the contract negotiations have negatively impacted the stocks of Ford Motor Co., General Motors Co., and Stellantis NV.

Tense Negotiations

The ongoing negotiations have been tense from the start. UAW President Shawn Fain deviated from tradition by refusing to shake hands with auto companies’ executives and instead introduced the “members handshake.” Fain, known for his assertiveness, even discarded a Stellantis offer.

Likelihood of a Strike

Analysts at Evercore ISI estimate the likelihood of a strike at the Big Three to be greater than 50%. The next three weeks will be crucial for the UAW and the companies to reach an agreement and avoid a prolonged strike.

Bargaining Power and Economic Realities

Auto workers represented by United Auto Workers hold significant bargaining power. However, they also face economic realities that are not present for other industries’ unions, such as UPS’s teamsters and pilots at American and other U.S. airlines, according to collective bargaining professor Harry Katz from Cornell University.

Potential Consequences for Automakers

Ford, GM, and Stellantis stand to lose a substantial amount if their plants are forced to shut down due to a strike. Auto workers are not easily replaceable, and in the event of a strike, it is unlikely that workers would cross the picket line, further impacting production.

Find out more: How much would a strike cost the Big Three automakers? Wall Street thinks it has an answer.

The Changing Landscape of Unions in the U.S. Auto Industry

Around half of the vehicles on U.S. roads today are not manufactured by unionized U.S. workers, according to industry expert Katz. This includes both imports and vehicles produced in non-unionized plants within the United States. Additionally, the percentage of unionized workers in independent auto-parts manufacturing has significantly declined in recent years, accounting for only an estimated 5% of the workforce.

Tesla Inc., known for its resistance to unionization, faced action from the National Labor Relations Board earlier this year. The board ordered the company to reinstate an employee who was fired for involvement in labor organizing and also demanded that Chief Executive Elon Musk remove a tweet discouraging unionization.

The rise in popularity of electric vehicles (EVs) poses a unique challenge for UAW leadership, as battery-making factories tend to be non-unionized. Furthermore, the transition to EV production typically requires less labor compared to traditional automotive manufacturing processes.

Labor negotiations between the UAW and automakers have become a focal point for investors following the release of second-quarter results. According to Dan Levy at UBS, these negotiations have exerted significant pressure on auto stocks, overshadowing other industry factors. This pressure is expected to persist as long as the intensity of rhetoric surrounding the negotiations continues to escalate.

The UAW has made substantial demands in its negotiations, arguing that record profits should lead to record contracts for workers. Among their requests are a 46% wage increase, structured as a 20% raise upon ratification and four subsequent increases. They also seek the elimination of wage tiers and a reduction in the workweek to 32 hours.

As a consequence of these ongoing labor concerns, shares of Ford and GM have experienced declines of 13% and 21% respectively in the current quarter. In contrast, the S&P 500 index has only retreated by approximately 0.5%. Stellantis shares, which are also traded on European stock exchanges, have seen a 4% increase during this period.