The UAW strike, which began Sept. 15, appears to be pumping the brakes. The union has reached tentative deals with Detroit Three automakers Ford, General Motors and Stellantis. Next, the UAW may be shifting to unionize workers at Tesla, Toyota and Volkswagen.
In an interview for Investor's Business Daily's Industry Insights show, Mike Colias from the Wall Street Journal broke down the new contracts for United Auto Workers and discussed how the union may next try to organize Tesla and other nonunion companies.
New Deal
IBD: What's covered in the tentative, new deals with GM, Ford and Stellantis, following the UAW Strike?
Mike Colias: The companies have referred to these as record contracts. The union is saying it's the biggest gains they've had since the 1960s, a 25% wage increase for workers. They also got back this cost-of-living adjustment, which they haven't had in 15 years. That gets baked into their fixed wage, which really puts them at more like 33%.
There's a bunch of other good stuff in there. There's temporary workers are going to get a huge pay increase. That's driven the union nuts. For years you've had people on the line working next to someone, and they're getting paid half. So some of these people are working for 16 bucks an hour now and will be getting paid 40 by the end of this four-year contract. There are a lot of retirement benefits improved. There's a lot of stuff that I think the workers will like in these tentative deals.
UAW Strike Final Stretch
IBD: What's the likelihood of the new deals being ratified and the UAW strike officially coming to an end?
Colias: The process now, it'll take a week or two. The union leadership, they're the ones that hammer out these terms with the companies. And so they go and explain in fine detail what all is in these deals. And then the workers at their local chapters across the country vote on this. It's widely expected that it will pass for a lot of the reasons that I mentioned.
It's a really rich contract. You know, the union was very vocal all along, and sort of negotiated this in public, which is very unusual. Some people have said, did they raise expectations too much? You know, they would ask for a 40% increase at one point in a four-day workweek. And, you know, there were some things they did not get.
But I think, by and large, these are some pretty strong gains. And I would expect that in all three companies, the workers will ratify them.
Raising Car Prices?
IBD: How will these potential new deals impact the Detroit Three and the rest of the auto industry?
Colias: I think right now it would be difficult for the companies to push through price increases because prices have been up so much post-pandemic. You know, people have been willing to pay up for features in the highest trim levels on different models.
Companies haven't been giving discounts. A lot of that was because there was a car shortage. That's started to get better. But prices are still really high. So, you know, the consumer is ... there's going to be more pressure that already is on the consumer (like) higher interest rates. I think their ability to pass through so many costs in the next year or two is going to be difficult.
But I do think longer term, you know, Ford pegged the increase in these labor costs at about $900 per vehicle. This is an industry that agonizes over spending nickels and dimes, like adding cost to the car. So that's a big hit. And I think that's what the Detroit auto executives are most concerned about. We were already at a competitive disadvantage to these foreign automakers, to Tesla before this contract. And now that gap has just gotten wider.
The Cost Of Walking Out
IBD: How much has the UAW strike cost the Detroit Three and the rest of the auto industry?
Colias: When they got these tentative deals, the union instructed their workers to go back to work. So the strike, for now, is essentially over unless they were to turn down this contract, maybe they go back out. But for now, the strike and all three companies' workers are getting back to the assembly lines. You've had about a $3 billion hit across the three companies, so roughly a billion each. That's actually not as bad as a lot of people expected going in, because I think, as we've talked about, the strike was only at certain factories. Most of the factories weren't affected.
And so that limited the impact to the bottom line. If you're a Toyota contract or Toyota worker, down in the south, and you see you're getting paid maybe 30 bucks an hour, high 20s, and you see Detroit getting 40, I think there's going to be pressure on some of those companies to raise their wages as well.
Organizing Tesla?
IBD: What's next for the UAW? Will the union try to organize Tesla, Toyota and Volkswagen?
Colias: What we've seen in these talks and this strike is a much more aggressive and assertive union. There's kind of a new reform faction that has sprung up over the last few years. There had been a big corruption scandal in the union. I think that created an opening for some reform-minded folks to come in. They've gotten a lot of labor activists to come into the leadership and really get the communications to a very aggressive point.
They really got out there with their message. And I don't think that was by mistake. I think that they wanted to leverage the gains that they got in Detroit to organize places like Tesla. They've already referenced it. And in announcing this latest deal, Shawn Fein, the president of the union, said four years from now it's not going to be just the Big Three. It's going to be the Big Six or Seven. They're really being assertive about this organizing push.
The Markets Respond To UAW Strike Ending
IBD: How are automaker stocks faring, and how might they react as the UAW strike negotiations come to an end?
Colias: What we've seen is a lot of pain in the share price of both GM and Ford, particularly last week. Their stocks hit multiyear lows, I think nearly three years for Ford. I think GM is one of the lowest points since CEO Mary Barra took over a decade ago. I think there are a lot of factors. It's not just the labor contracts.
I think that's probably the biggest kind of headline thing that investors are worried about. But there has been some news in the past week that kind of spooked Wall Street, the Street, a bit. One was both companies came out with their earnings last week. The earnings were fine, but there was a lot of commentary in their conference call about pulling back on electric-vehicle investments, you know, delaying this factory for a year.
Both of them are doing stuff like that, citing weaker-than-expected demand. The demand hasn't materialized for electric cars as they expected. So on the one hand, an investor could look at that and say: Well, that's, you know, that just makes sense. If the market's not there, let's pause and not spend all this capital. But on the other hand, Wall Street had been very excited about some of these growth opportunities for the traditional carmakers.
If that's not really materializing, and you've got pressure on your core business and things like autonomous driving and some of the other areas that they've spent on have looked tough, too, there's just not a whole lot for investors to get excited about right now, it seems, with the carmakers.
IBD: When it comes to fourth-quarter earnings reports from GM, Ford and Stellantis, what are we likely to see following the UAW strike?
Colias: Most of that $3 billion was in the fourth quarter, the hit to the bottom line. You could think of it as roughly a billion off of the bottom line of each of these companies. There's probably some other pressure on profits during the quarter as you try to ramp back up. You can't just flip the switch and have the factory come right back up again.
There could be some disruption there. So it'll be a down quarter. I think analysts and investors are just going to want to look at, OK, they want visibility into how are you going to absorb these costs now that it looks like tentative, pending a tentative agreement gets ratified. It looks like these are going to be baked in for the next four years, and you're going to have to figure out how to offset those.
