In 2023, the Detroit automakers face a high-stakes dance within UAW union contract negotiations. Compared to 2019, the slack is severely less, with AEG CEO Patrick Anderson noting that any strike onset would have severe consequences for automakers within the week. This battle for labor-cost leverage surfaces as existing contracts with the union loom on the expiration horizon at 11:59 p.m. ET on September 14.
The union contract negotiations aren’t trivial matters, as they essentially equate to purchase orders securing labor for future vehicles, parts, and component assembly. Regarding monetary value, one could imagine an astronomical figure of $70-$80 billion across the coming four years. As the UAW prepares a procedural strike authorization vote, the stakes are high, and both sides remain alert and calculating.
These hefty labor cost figures pose a nerve-wracking conundrum for investors. Deutsche Bank has previously estimated weekly production strike implications on automaker profits, painting dire pictures of $400 to $500 million losses. For the UAW, this strike authorization is a significant power play, although not without severe financial implications. With just over $825 million in its strike fund, a weekly strike pay of roughly $75 million looms as a sizeable financial drain.
Several scenarios for the strike action exist. The most drastic and impactful of these is a simultaneous national strike across all factories, a move fraught with financial risks. An alternative and possibly less damaging strategy is targeted work stoppages at selective plants where local contract issues prevail.
The stoppage of work by approximately 150,000 UAW workers at GM, Ford, and Stellantis paints an economic woe looming on the horizon. The Anderson Economic Group warns of the sobering figure of over $5 billion in economic loss just ten days into the strike.
At the heart of the contract negotiations is a complex pay structure with UAW members currently earning roughly $18 an hour, with a four-year “grow-in” period to reach over $30 an hour. The union demands include a significant 46% wage increase, restoration of traditional pensions, cost-of-living increases, a reduction in the workweek from 40 to 32 hours, and increased retiree benefits.
If these demands are met, industry experts project that the all-in hourly labor cost for automakers may skyrocket, potentially rising from $64 to an astounding figure of over $150 per hour—an increase that significantly surpasses previous wage hikes.
The storm brews ominously as the high-stakes game plays out against a disrupted automotive industry dealing with supply chain issues due to the recent pandemic. Lower vehicle inventory levels than four years ago make the predicament even more precarious and volatile.
While successfully navigating these negotiations will be a defining moment for newly-minted UAW president Shawn Fain, the outcome will inevitably leave a lasting impact on the US automotive industry at large. Warren Buffett’s Berkshire Hathaway firm’s significant cut of its General Motors stake is an ominous sign of turbulent times ahead. As tensions rise, the conversation around the negotiation table engulfs more than just the automakers or the union, extending its tentacles into the very bedrock of the US automotive market.
