UAW Strike Causes Turbulence for Ford and Other Automakers

The United Auto Workers (UAW) sent shockwaves through the industry when they walked out of Ford Motor’s Kentucky Truck Plant. This unexpected move came after the company stood firm on what it claimed to be the best economic offer among the Detroit-Three auto makers.

It seems that the UAW is now entering a new phase in their battle, as they aim to inflict more financial pain on Ford (F), General Motors (GM), and Stellantis (STLA). Investors must prepare themselves for potential strikes at more significant plants, as UAW President Shawn Fain shows no signs of backing down.

The strike initially began on September 15, with workers walking out at one plant from each auto maker. While products like the Ford Bronco, Chevy Colorado, and Jeep Wrangler are affected, they are not the most crucial ones for these companies.

On September 22, the strike expanded to include parts and distribution facilities at GM and Stellantis. Then, on September 29, plants producing Ford Explorers and Chevy Traverses also joined the strike. The Ford Explorer alone accounts for approximately 10% of U.S. volume, while the Traverse and Buick Enclave make up about 7% of GM’s U.S. volume.

However, the impact of the strike at the Kentucky Truck Plant is on another level. This facility specializes in manufacturing Ford super duty trucks and contributes around $25 billion in annual sales, representing about 14% of the company’s total sales. BofA Securities analyst John Murphy referred to this walkout as a “serious blow” in a recent report. According to his estimates, every week this plant remains offline results in a loss of 5 cents in earnings per share for Ford. Currently, consensus forecasts project Ford’s fourth-quarter earnings to reach 28 cents per share.

Murphy Rates Ford Stock at Buy with $23 Price Target

Murphy, an esteemed analyst, has given Ford stock a Buy rating with a price target of $23. Despite the ongoing turmoil, analysts still remain optimistic that a deal will eventually be reached.

Light-Duty Truck Plants and Potential Strikes

Investors should keep a close eye on the possibility of light-duty truck plants going on strike. These plants are responsible for manufacturing pickup trucks, which are major profit generators for the Detroit-Three automakers. Ford, for instance, has plants located in Dearborn, Michigan, Kansas City, Missouri, and Kentucky that specifically produce their best-selling product, the F-150 trucks.

General Motors (GM) operates plants in Fort Wayne, Indiana, and Flint, Michigan, where they manufacture Chevy Silverados and GMC Sierras. Meanwhile, Stellantis has a plant in Sterling Heights, Michigan, solely dedicated to producing Dodge Ram trucks.

In the event of any of these plants going on strike, the financial impact on each company would be significant.

The Ongoing Strike

The strike has now been ongoing for 27 days with no clear end in sight. UAW’s Fain is scheduled to speak at 10 a.m. on Friday. Both UAW members and auto investors eagerly await updates on the progress of negotiations.

Performance of GM, Ford, and Stellantis Shares

Over the past three months, GM and Ford shares have experienced a decline of approximately 24% and 21% respectively. In comparison, the S&P 500 has witnessed a modest decrease of around 3% during the same period. Conversely, Stellantis stock has risen by approximately 8%.

It is worth noting that Stellantis is a more globally diversified company compared to its counterparts. As a result, the U.S. strike has a relatively lesser impact on its overall operations. Additionally, Stellantis stock is priced more affordably, trading at less than four times the estimated 2024 earnings. In contrast, Ford and GM shares trade at less than seven times and five times, respectively.