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For the United Auto Workers (UAW), this strike against Detroit's three major car manufacturers can be described as a victory.
The six week strike ended on Monday after General Motors reached a temporary labor agreement with UAW; The union has previously reached similar agreements with Ford Motor and Chrysler parent company Stellantis.
The end of this strike is good news for these three car manufacturers. But it also indicates that the Detroit Big Three may face difficult times in the future, and it is expected that the new agreement will push up the labor costs of these companies more than initially expected at the beginning of the negotiations.
We fully believe that our strike has forced General Motors to make all possible concessions, "UAW Chairman Shawn Fain said in a video released on Monday
Ford executives are already discussing the necessity of offsetting higher expenses in the latest agreement. The car manufacturer has stated that this UAW contract will increase the cost of each vehicle by $850 to $900.
We have work to do, "said John Lawler, Chief Financial Officer of Ford last week. We need to improve efficiency and productivity. This is a record breaking contract
The temporary agreement includes a general 25% increase in wages within four years, with the highest hourly wage for production workers being raised to around $42, taking into account the increased cost of living. The agreement will be voted on by union members in the coming weeks.
The temporary agreement includes a general 25% increase in wages within four years.
By the end of the contract period in 2028, the annual salary (excluding overtime) of most union workers in the Detroit Big Three will reach around $85000.
The agreement restored the adjustment based on cost of living, which includes inflation protection clauses in hourly wages; At the beginning of the negotiations, these Detroit automakers did not consider resuming this clause. In 2009, when General Motors and Chrysler were on the brink of bankruptcy, UAW abandoned this clause as a concession, but union negotiators reintroduced it into these contracts.
UAW has also achieved other significant victories, such as obtaining the right to strike over factory closures, increasing the wages of temporary workers, and reducing the time required for production workers to reach the maximum wage to three years.
One of the most significant achievements of UAW was to ensure the reopening of a 1350 employee factory in Illinois that Stellantis closed earlier this year. The union stated that it will establish an adjacent battery factory in the area.
As car industry executives prepare to start labor negotiations this summer, they are aware that they will need to spend more money to secure labor contracts compared to those that have occurred for a long time. The tight labor market, high inflation rates, record profit growth after the pandemic, and the rise of the labor movement in the United States have all laid the foundation for the UAW to win significant victories.
UAW leaders took advantage of this momentum to negotiate and strike with a strong attitude, which sparked the fighting spirit of ordinary workers. They were generally dissatisfied with the fact that over the past 20 years, labor contracts have only won relatively few rights.
On Sunday evening, Fain stated that the latest agreements reached were a "turning point" for UAW and emphasized that after winning against Detroit's three major automakers, UAW's next step will be to work hard to organize workers from other automakers such as Tesla, Toyota Motor, and Volkswagen. These car companies have not established unions in their factories in the United States.
When we start labor negotiations again in 2028, we will no longer just face the three major automakers, but will have to negotiate with the five or six major automakers
UAW stated that the recent temporary labor agreements reached will be the most lucrative contracts since at least the 1960s. The salary increase specified in it for only four years exceeds the total wage increase for workers in the past 22 years.
General Motors CEO Mary Barra stated that the agreement with UAW allows General Motors to continue investing in the future and provide good job opportunities in the United States. Bora said, "We look forward to employees from all business departments returning to work
The decline in stock prices of General Motors and Ford has exacerbated Detroit's unease. Ford Motor's stock price has closed below $10 for the first time since January 2021. Regardless of the sharp drop caused by the COVID-19 in 2020, GM's share price has now fallen to the lowest level in nearly seven years.
In addition to job uncertainty, there are other factors that make investors uneasy. Ford Motor's third-quarter profit severely underperformed expectations, partly due to recurring quality issues. Due to regulatory concerns about safety issues, General Motors' autonomous vehicle company Cruise has suspended all road operations of self driving taxis. In addition, both Ford and General Motors have withdrawn their previously cheering electric vehicle investment plans.
The continuous bad news over the past week is a stark reminder that these Detroit automakers are facing challenges in their core automotive manufacturing business, such as rising labor costs and pricing pressure, as they strive to complete their long-term transition to electric vehicles.
In the past five years, executives at General Motors and Ford have outlined the vision of rapidly transitioning automotive products to electrification and digitization, which can be updated like the iPhone and sometimes even undertake driving tasks. These executives have said that unlocking new features should boost profitability and one day lead to operating profit margins exceeding the usual 8% -10% level.
General Motors told investors last week that it will abandon the deadline set by the company to achieve next year's electric vehicle production target, including the goal of producing 400000 electric vehicles in North America by mid-2024. The market demand is not as strong as executives expected, and they hope to have time to redesign electric vehicle technology to reduce costs.
Ford Motor stated that this UAW contract will increase the cost of each vehicle by $850 to $900.
Ford Motor announced last Thursday that it will postpone its $12 billion capital expenditure plan for battery factories and other electric vehicle projects, stating that it does not want to stay ahead of the market.
These measures will save capital expenditure on a technology that, according to the original plan, will cause the company to lose money in the foreseeable future. These companies have stated that they have profit plans. But currently, the high cost of batteries, the associated costs of self-developed and produced key electric vehicle components, and the need to scale up from extremely low production all mean that a significant amount of funds will be spent.
These companies will not abandon their electric vehicle transformation plans and are unable to do so. Analysts say that even though American consumers are fickle, regulatory agencies in the United States, Germany, and China are all demanding that fleets reduce carbon emissions.
Despite the weakening demand from the United States and China prompting Tesla to lower prices, the company continues to expand and its profits are higher than those of the Detroit automakers in the United States. At the same time, the increasingly mature Chinese automakers are continuously increasing their profits, seizing market share, and rapidly expanding into Europe.
The traditional automotive business is shrouded in clouds. The threat of economic recession and sharply rising interest rates often suppress car sales, despite strong consumer demand so far. Analysts expect that the strong pricing that drives profit growth for automakers will be eroded, and buyers' willingness to spend on models and features will weaken.
Samantha McLemore, founder of PatientCapital Management, a Baltimore investment consulting firm, said she has always held shares in General Motors due to her preference for the company's healthy profit record and long-term prospects for electric vehicles and Cruise businesses. As of June 30th, Patient Capital Management holds approximately 1.6 million shares of General Motors stock.
What we really like is that the expectations are so low, "McLemore said.
Related reading:
General Motors Strike Upgrades Showcase UAW Tactics: Unexpected, Misguided
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