1695880106 There could be more UAW strikes Why this may not

There could be more UAW strikes. Why this may not end soon. -Barron’s

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There could be more UAW strikes Why this may not

The United Auto Workers strike began on September 15th.

Matthew Hatcher /AFP via Getty Images

The United Auto Workers union said there had been insufficient progress in collective bargaining with Ford, General Motors and Stellantis and was prepared to identify additional strike targets on Friday, as it did last week.

A union spokesman said Wednesday that UAW President Shawn Fain would announce further steps at 10 a.m. ET Friday, such as “new strike targets against the companies unless significant progress is made.”

“The UAW has set a new deadline of September 29 at noon Eastern Time to reach agreements with automakers,” the spokesman said.

Investors shouldn’t be too surprised. This strike will probably not end for a few weeks.

Last Friday, Fain announced that UAW workers would be leaving 38 parts and distribution locations at both General Motors (ticker: GM) and Stellantis (STLA). Ford Motor (F) was spared due to progress in negotiations with this company.

The parts and distribution facilities came as a surprise to Wall Street, which had expected action against more assembly plants. The UAW strike began on September 15 at one assembly plant at each of the Detroit Three automakers.

Strike locations can serve as an indicator of the progress of labor talks. For example, when the union strikes at factories that make pickup trucks, such as the Ford complex in Kansas City, it is a sign that the union wants to inflict more pain on automakers. Trucks generate significant profits for all three companies.

If Ford is included in more strike targets this week, it could be a sign that the union is unhappy with the company’s decision to halt development of a battery factory in Michigan. Ford said there were many reasons for the pause in construction, but did not become specific. The reasons could include that the federal government has expressed concern about the Chinese company from which Ford is licensing battery technology. This is the world’s largest battery manufacturer, Contemporary Amperex Technology Co Ltd (300750.China), better known as CATL. Weaker-than-expected demand for Ford electric vehicles could also play a role, as could the cost structure of the plant, which would likely be a target for UAW unionization.

Ford, GM and Stellantis did not immediately respond to a request for comment Wednesday.

The UAW has been on strike for almost two weeks, but analysts don’t expect a quick solution. In a recent report, Wells Fargo analyst Colin Langan suggested 45 days was likely. The UAW went on strike against GM for 40 days in 2019.

This strike was more costly for both the company and the union. The UAW went on strike against the entire company, with estimates putting the number at around 40,000 to 50,000 workers. That put a strain on the UAW’s strike fund.

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With fewer than 20,000 workers currently on strike, the financial burden on the estimated 140,000 to 150,000 members of the Detroit-Three union is expected to be less. This also limits the damage to car manufacturers. The 2019 strike cost GM about $3.6 billion in lost profits. With production still running and fewer workers out, this number remains significantly lower at this point in 2023.

There are other reasons why investors shouldn’t expect a quick fix. One is that both sides have significant points of contention. The union is demanding dramatically higher wages, in part to offset previous concessions made during tougher times in the auto industry. Don’t forget that GM filed for bankruptcy during the 2008-09 financial crisis. Meanwhile, companies fear they could compete with non-union EV companies like Tesla (TSLA) as electric vehicle adoption increases in new car sales. These are far more complicated times for the industry and neither side is likely to give in quickly to its core demands.

Another reason why the strike could last a while is human nature: given the importance of workers’ demands, it makes no sense to strike for days. It also does not seem realistic that both sides will soon be able to close the apparently large negotiation gap.

Shares of Ford and GM have fallen about 17% and 16%, respectively, since early July, when labor issues came to the fore. The S&P 500 is down about 2% over the same period.

Stellantis shares are up about 7%, but Stellantis’ business is more global than GM’s or Ford’s. That’s one reason the company’s stock doesn’t trade in lockstep with the shares of the other two automakers. The stock is also cheaper, trading for less than four times estimated 2024 earnings. GM and Ford shares trade at less than five times and seven times, respectively.

Shares of all three have been little changed in recent days as negotiations have become increasingly heated. Investors are probably waiting to see what happens next.

Write to Al Root at [email protected]