With UAW strike looming, contract negotiations may lead to costlier EVs. Here's why
The outcome of the UAW negotiations with the Detroit automakers could likely mean higher new car prices, especially for electric vehicles, and a cost structure that could hurt the automakers in the long run, Wall Street analysts say.
As the union's Sept. 14 contract deadline nears, a possible strike looms larger. A strike is "a potential nightmare situation for GM and Ford" since both are in the early stages of a transition to an all-EV future that can't be derailed, Dan Ives managing director and senior equity analyst at WedBush Securities, wrote in a research note Wednesday.
"We spent time in Detroit last week and sense a 'very nervous time' across the auto industry as there is a lot riding on these negotiations and with the recent UPS union deal sealed this puts more pressure on the UAW leadership to deliver a big win," Ives wrote.
Morningstar auto analyst David Whiston said in a research note on Friday that he is more concerned about this year’s talks than he’d normally be because some of the UAW’s demands are "not economically possible if the automakers want to remain competitive."
What are UAW workers asking for?
The UAW's leadership got approval in late August from members to strike if they cannot reach a tentative agreement with General Motors, Ford Motor Co. and Stellantis by the contract's expiration at 11:59 p.m. on Sept. 14. There are 150,000 members across the Detroit Three.
UAW President Shawn Fain told members during a recent Facebook Live presentation that he informed each of the Detroit Three to come to the table this week with counterpoints to the union's demands. The demands center on a 40% increase in hourly wages, reinstating cost-of-living adjustments, a shift back to pensions, a 32-hour workweek and elimination of compensation tiers, among other things.
Fain emphasized the Sept. 14 deadline was firm and that extending the contract was not an option. He indicated the UAW was keeping its options open regarding how to strike if it becomes necessary.
Whiston said while it is possible that the union striking all three automakers could cause a supply chain meltdown that forces the Detroit Three to "cut a deal fast ... we also think management teams know they cannot agree to reopen pension and retiree health care plans. Active workers do not pay any health care costs other than primarily small copays, so there’s no room for compromise between adding retiree health care while reducing essentially 100% health care cost coverage for active workers."
The impact of a 40% wage increase
The big issue for GM and Ford as well as investors is if the union gets a 40% wage increase, Ives wrote, it will be "a major headwind on the cost front and ultimately in some way be passed down to the consumer."
He said the lower costs of EVs from the Detroit carmakers is a major advantage to mass adoption and any increase could hurt sales. Ives told the Free Press, "We would estimate $1,500 to $2,000 roughly added to price of an average EV."
He was not sure how it might affect gasoline-powered new vehicles yet, saying, "EVs are the big issue here."
Whiston declined to speculate on a dollar number for vehicle prices if the UAW gets a big wage increase and its other demands.
But he told the Free Press, "I do think that if the UAW got everything they wanted, it’d be the beginning of another long multidecade death spiral for the firms that we saw culminate in 2008-09."
Whiston said the Detroit Three can afford "something in the range of 40%-plus pay increases over the new contract’s term with a 20% raise at ratification" but other UAW demands are not feasible, especially a shortened workweek, continuing to pay workers if plants are closed, and reopening pension plans and retiree health care.
"This retiree funding cost alone would likely be many tens of billions; for example, GM's and Ford’shourly pension plans have been closed to most new hourly hires since fall 2007," Whiston wrote in his research note.
Farley and Barra 'backs against the wall'
Ives said GM CEO Mary Barra and Ford CEO Jim Farley are "caught between a rock and a hard place."
The automakers want to capture EV market share from current EV leader Tesla. As a nonunion company, Tesla does not face the issues staring down Barra and Farley, "which speaks to the complexity both GM and Ford face going up against the EV leader Tesla, while trying to satisfy rising union demands," Ives wrote.
Ives predicts that a strike could push EV production and the automakers' plans for EV rollouts this year into 2024 and "delays would be on the horizon at this crucial period for GM, Ford, and Stellantis," he wrote.
But if the union wins some of its major proposals, it could result in billions of incremental annual costs that "will be damaging and ultimately increase the prices of EVs rolling out over the next 12 to 18 months to consumers," Ives wrote.
The UAW's Fain has said the Detroit Three can afford its demands. He has noted that over the past decade, the Detroit Three have made a quarter-trillion dollars in North American profits and in the first half of this year, the three automakers made a combined bottom line profit of $21 billion. Fain has said union members want their fair share and are ready to fight for it.
On Aug. 3, GM publicly confirmed what the Detroit Free Press had first reported in July: It would give the union an hourly wage increase. But it said, "The breadth and scope" of Fain's demands would "threaten" GM's long-term financial health.
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"Farley and Barra both face some tough decisions ahead and find themselves with the back against the wall as the options around facing a strike OR accepting a major cost intake for the next decade is a dynamic the Street will be closely watching," Ives wrote. "Negotiations between the UAW and the 313 stalwarts over the coming weeks will be key to see who gains an advantage in this game of high stakes poker."
Contact Jamie L. LaReau: jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.