Ford and Stellantis Overcome UAW Strikes, Rising Wage Pressures May Complicate the Big Three’s EV Future

Two-thirds of the Big Three Automakers have reached tentative agreements with the United Auto Workers (UAW) union on new four-year contracts that will raise the pay of full-time employees by at least 30%. Those deals will end union strikes at Ford and Stellantis, but work stoppages targeting General Motors (GM) are still expanding as negotiations between the two parties continue. Ford announced their agreement with the UAW just hours before it was set to report earnings, likely in an attempt to mitigate some of the damage its shares were bound to take after the company reported subpar earnings figures. 

Billions of dollars’ worth of production was wiped out by strikes at Ford, compounding large disclosed losses at GM as well. Like GM, Ford suspended its full-year profit guidance, but did report significant margin compression and expanding net losses on electric vehicle (EV) sales. $12 billion in planned investment in Ford’s EV capacity was put on hold as the cost structure of its new vehicles were thrown into uncertainty by the UAW winning a pathway to put the company’s battery plant employees under UAW membership in the near future.

Related Stocks: Ford Motor Company (F), General Motors Company (GM), Stellantis N.V. (STLA)

Just before it reported earnings last Thursday, Ford announced a tentative deal with the United Auto Workers (UAW) union to avert further strikes targeting company facilities. Fellow Big Three automaker Stellantis followed suit, announcing their own deal framework with the UAW on Saturday. MRP noted last Wednesday that an end to the strike might be imminent, following a particularly aggressive escalation of UAW strike actions against General Motors (GM). UAW President Shawn Fain had suggested that the ”hardest part of the strike” may be “right before a deal” in an October 20 statement, foreshadowing what was to come. Both companies will pay out 25% base wage increases (with an 11% increase up front) to UAW members throughout the next four years. The pay hike will be equivalent to at least 30% for full-time workers – but that is down from an initial demand for as much as a 46.0% boost through 2027 at the initial stages of negotiations. Raises will likely be materially larger than what has been guaranteed, as cost-of-living adjustments, which were previously removed from the UAW contracts in 2007, have been revived. This will add an extra bump in pay relative to inflation.

GM is now the lone holdout in negotiations with the union and is now subject to further work stoppages that begin today. An additional 4,000 workers from a GM’s largest North American plant in Tennessee joined the picket line over the weekend, compounding 14,000 UAW workers already on strike at GM facilities. Those 18,000 workers are equivalent to roughly 40% of the automaker’s union workforce. As of last week, the hit to GM’s EBIT as a result of the UAW work stoppages has already risen to around -$600 million, and could accelerate further at a pace of -$200 million per week, according to GM CFO Paul Jacobson. If the strike were to continue through the rest of the year, this would suggest that the hit to GM’s Q4 earnings could approach…