General Motors (GM) and Ford Motor are set to release their third-quarter earnings and future guidance amidst ongoing strikes and contract negotiations with the United Auto Workers (UAW) union. This presents a difficult balancing act for the automakers. If they surpass Wall Street’s expectations and demonstrate healthy profits, it could bolster the UAW’s argument that the companies can afford more concessions. However, if GM and Ford appear too bearish or downplay the impact of the UAW’s efforts, it risks alarming investors and further depressing their stock prices.
GM is anticipated to report earnings of $1.88 per share before the bell on Tuesday, while Ford is expected to report earnings of 45 cents per share after markets close on Thursday. While these figures are essential, investor focus will primarily be on the effects of the UAW strike and negotiations. The outcome of these events will significantly impact near-term earnings and the long-term plans of both automakers, as well as Stellantis, the automaker also facing a strike by the UAW.
The UAW has consistently used earnings reports and executive commentary to bolster its collective bargaining efforts. By highlighting the automakers’ profitability, the union aims to convince the public and decision-makers that the companies should provide more concessions. As Art Wheaton, a labor professor at Cornell University, explains, “When you’re in bargaining, you want to use every piece of news that’s in your favor and bring it up… to the table.”
The UAW recently emphasized that there is “more to be won” despite the automakers’ record contracts. However, the union did not announce any expansion of work stoppages. Nevertheless, the targeted strikes against GM, Ford, and Stellantis, which commenced on September 15, are expected to have a more substantial impact in the fourth quarter compared to the previous three months. The union has gradually expanded the work stoppages to additional assembly plants and distribution centers.
GM stated that the September work stoppage cost them approximately $200 million in lost production. Ford and Stellantis have not disclosed their estimates of the strikes’ impact. However, JPMorgan estimates that the strikes resulted in losses of $145 million for Ford and $191 million for GM in terms of earnings before interest and taxes during the third quarter. These losses are projected to escalate significantly during the fourth quarter due to the union’s work stoppage at Ford’s most profitable U.S. truck plant in Kentucky. This particular plant generates $25 billion in revenue annually and produces F-Series Super Duty pickup trucks, Ford Expedition, and Lincoln Navigator SUVs.
While many analysts view the UAW strike as a temporary issue, they also acknowledge the substantial costs that may arise from a future concessionary deal. These costs could impact the automakers’ electric vehicle (EV) plans and their long-term competitiveness compared to non-union automakers. The Detroit automakers’ labor costs are projected to increase to $3,000 to $4,000 per vehicle, while their competitors’ costs range from $2,500 to $3,000 per vehicle.
Rod Lache, an analyst from Wolfe Research, highlights that the increase in labor costs could compound other challenges faced by the automakers, such as competitiveness in batteries, distribution, and design. He also expresses concerns that the automakers may not fully appreciate the risks associated with the UAW’s new tactics, including public bargaining, social media, and populism. Lache states, “The Automakers appear to be struggling to adjust to this reality.”
The negotiations between the automakers and the UAW have also influenced the progress and demand for electric vehicles. Ford announced last month that it would pause the construction of a new $3.5 billion battery plant in Michigan until it is confident about its ability to operate the plant competitively in light of the ongoing UAW talks. Similarly, GM recently announced a one-year delay in the production of all-electric trucks at its Michigan plant in order to make necessary improvements and ensure the profitability of the new EVs. Although GM states that this change in plans is unrelated to the contract negotiations with the UAW, the talks do involve EVs, and it is expected that the current contract proposals will be more expensive than previous ones.
This ongoing labor dispute has drawn the attention of Wall Street, and investors are keen to receive updates on the progress and demand for electric vehicles. Even Tesla CEO Elon Musk expressed caution regarding the demand for EVs when his company reported earnings last week, citing concerns about the high interest rate environment.
The strikes and contract negotiations with the UAW present significant challenges for GM and Ford. The outcome of these events will not only impact their earnings but also their long-term competitiveness, particularly in the rapidly emerging electric vehicle market. It remains to be seen how the automakers will navigate this delicate situation and strike a balance between meeting the demands of the UAW and maintaining their financial health and investor confidence.
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