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Detroit 3 fall as UAW begins strike

September 15, 2023 8:44 AM

The stock prices of Detroit automakers General Motors (NYSE: GM) and Ford (NYSE: F) have declined in pre-market trading Friday, while Stellantis (NYSE: STLA) has seen a slight increase. This shift in stock prices follows reports of an impending walk-out and strike by the United Auto Workers (UAW) union against the Big Three companies.

Before the September 14th deadline at 11:59 pm ET, negotiations between the UAW and the management teams of Ford, General Motors, and Stellantis failed to reach an agreement on new contract proposals. Consequently, the union has initiated a series of strikes at specific plants. UAW President Sean Fain has characterized this as a "stand-up strike" aimed at disrupting the operations of all three OEMs simultaneously.

The initial round of strikes targets specific facilities, including the Ford Michigan Assembly Plant in Wayne, the Stellantis Toledo Assembly in Ohio, and the General Motors Wentzville Assembly in Missouri.

“strikes targeting specific plants could turn into a logistical nightmare for The Detroit Three as it relates to the supply chain,” writes CFRA analyst, Garertt Nelson in a note.

"This strategy will keep the companies guessing. It will give our national negotiators maximum leverage and flexibility in bargaining. And if we need to go all out, we will. Everything is on the table," Said UAW President, Sean Fain.

After speaking with investors, Morgan Stanley analyst, Adam Jonas wrote that he only expects a “small negative market reaction” to the Ford, GM and Stellantis share prices early on. According to Jonas, a strike outcome was the overwhelming consensus, as an investor survey showed 82% of respondents expecting a strike.

“Moving forward, we expect all three stocks to be sensitive to UAW news flow especially as it relates to the potential duration of industrial action. The vast majority of respondents (96%) in our UAW survey expect the strike to last longer than 1 week, and over a third (34%) expect the strike to last longer than 1 month.” Writes Jonas

According to Wells Fargo's estimation, there are approximately 71,000 workers employed by the Detroit 3 automakers in Michigan and New York. These workers receive strike pay of $500 per week, and the UAW also covers major medical and prescription costs, which likely adds an additional $100-150 in expenses. Based on these calculations, it appears that the $825 million in UAW strike funds would be depleted in approximately 100 weeks if the strike were to continue at this rate.

It's important to note that individual local unions are only permitted to strike over issues that pertain to their specific facility and not company-wide matters. In the past, when a strategic bottleneck strike occurred at GM in 1998, GM filed a lawsuit that was subsequently dropped when negotiations concluded. Therefore, there is an expectation that automakers may take a similar route by filing their own unfair labor practice claim with the National Labor Relations Board if the UAW pursues this strategy.

The UAW is demanding a salary increase to match the +40% salary raises received by the CEOs of the Detroit 3 automakers. All three D3 companies countered with wage increases that the UAW considers inadequate, ranging from 17.5% to 20.0% over a span of four and a half years.

The UAW is also demanding the conversion of temporary workers to full-time status after 90 days of employment. While GM and Stellantis have offered wage increases, they have provided insufficient benefits and excluded profit-sharing. Furthermore, STLA has not presented a pathway to full-time employment for temporary workers. In contrast, Ford has offered to convert all current temporary employees after 90 days of continuous service.

Additionally, the UAW is advocating for increased PTO, more holidays, and a shorter workweek. All three D3 companies have rejected this proposal, except for the inclusion of the Juneteenth holiday.

Shares of GM and F are down 0.33% and 0.87% respectively in pre-market trading Friday morning. While STLA is up 0.53%.

By Michael Elkins | [email protected]

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