As Warren Buffett’s Berkshire Hathaway gradually pulls out from General Motors, signs of an impending storm in the U.S automotive industry become more evident. Without known reasoning, the firm revealed it had nearly slashed its stake in General Motors by half within the critical second quarter, a significant step perhaps preparing for the tumultuous year-end with the auto industry bracing for fraught contract discussions involving the United Automakers Workers (UAW) union, GM, Ford Motor, and Stellantis.
The contract negotiations, declared by UAW’s new leadership as the union’s “defining moment”, have seen a lack of productive discussions so far, an indication of the potential struggles that lie ahead. Union President Shawn Fain has shown no aversion to theatrical conflict, once tossing Stellantis’ contract propositions into a trash bin, indicating a lack of willingness for compromise at this stage.
The possibility of a strike is causing waves of concern. Strike forms could range from national with all contract workers downing tools, or it could take on a more localised nature, affecting specific plants on contract disputes. The latter, a national strike as hinted by Fain, stands as the most conspicuously impactful, with ripples spreading through the entire industry.
This wouldn’t be the first instance of a strike hitting the auto industry hard. Recalling the bitter 40-day strike against GM in 2019, the company faced a shortfall of 300,000 vehicles and a blow of $3.6 billion in earnings. Industries experts argue that if struck once more, it could disrupt their recovery given existing supply chain difficulties due to the pandemic.
The union is fighting for a 46% wage surge, reestablishment of old pensions, cost-of-living spikes, shortened workweeks, and augmenting retiree benefits. There’s abundant aftermath if the parties fail to agree on a tentative pact before the contracts’ expiration.
Should a strike action ensue and the UAW’s exorbitant demands met, digesting these changes could be a bitter pill for automakers. The increase would mean that automakers would now be footing more than double the hourly labor costs, ballooning from an estimated $64 per hour to an astronomical $150+.
A hefty strike fund stands awaiting any likely work-stoppages, clocking in at $825 million. The UAW’s members will receive $500 per week – a significant boost compared to $275 pocketed last year. However, once weekly earnings hit $500, the strike pay ceases, while benefits like medical and prescription drug assistance persist.
Analysts from Deutsche Bank predict a sizable dent in earnings at every company affected by a strike, drawing the estimated loss to about $400-500 million per production week. Anderson Economic Group also speculated a crippling $5 billion loss if UAW workers orchestrated work stoppages for ten days.
With the UAW planning a procedural strike authorization vote, which if passed gives union leaders clearance to press the strike button, it unearths memories of 2019’s strikes. The UAW’s efforts might rekindle faith in organized labor, but it doesn’t bode well for shareholders or the corporates.
Contracts between the Detroit automakers and UAW are set to expire at 11:59 p.m. ET on Sept. 14. With the industry on a tightrope, investors, automakers, union members, and the workforce at large watch in trepidation as to how this critical moment will turn out.
Industry stakeholders have been warned, as union negotiations cast a looming shadow over the U.S. automotive industry. With the strike clock ticking, it’s more crucial than ever that a satisfying resolution is forthcoming – For the workers, the companies, and shareholders alike.
