UAW Demands Threaten to Hurt GM and Ford’s Profitability

The United Auto Workers (UAW) union is demanding a hefty pay raise and other changes from the Big Three US automakers: General Motors Co. (GM), Ford Motor Co. (Ford), and Stellantis NV. The union wants a 46% wage increase, restoration of traditional pensions, cost-of-living adjustments, a shorter work week, and better retiree benefits. The demands come as the UAW is negotiating a new four-year contract with the automakers, which expires on September 14.

The UAW argues that its roughly 150,000 members deserve a fair share of the profits that the Big Three have enjoyed in recent years, especially after they helped them recover from the Great Recession a decade ago. The union also points to the favorable deal that the Teamsters union secured last month with United Parcel Service Inc. (UPS), which added tens of billions of dollars in new costs for the courier company.

UAW Demands Threaten to Hurt GM and Ford’s Profitability
UAW Demands Threaten to Hurt GM and Ford’s Profitability

The Big Three resist the UAW’s demands and cite competitive pressures

The Big Three have rejected many of the UAW’s demands, saying that they already offer generous pay and benefits to their workers, and that they need to keep their labor costs competitive with their lower-paying and non-union rivals, such as Tesla Inc. (Tesla). The automakers also cite the need to invest billions of dollars into the transition to electric vehicles (EVs), which is expected to reshape the industry in the coming years.

According to Bloomberg, the UAW’s demands would add more than $80 billion in expenses for each of the Big Three over the next four years, which would significantly erode their profitability and cash flow. The automakers estimate that their average hourly labor cost, including wages and benefits, would rise from about $63 to $92 under the UAW’s proposal, compared to about $55 for Tesla and $50 for foreign automakers operating in the US.

The stock market reacts negatively to the UAW’s demands and the risk of a strike

The stock market reacted negatively to the news of the UAW’s demands and the risk of a strike that could disrupt the operations of the Big Three. On Thursday, GM shares fell 5.8% in New York, their biggest daily plunge in nearly eight months. Ford shares dropped 4.5%, and Stellantis shares declined 1.8%. GM and Ford were among the biggest percentage decliners on the benchmark S&P 500 index.

Analysts said that the UAW’s demands were unrealistic and excessive, and that they could hurt the long-term competitiveness and growth prospects of the Big Three. They also said that the investors were worried about the uncertainty and volatility that the labor negotiations could create for the automakers.

“GM and Ford may be in the penalty box for a while. Wall Street hates uncertainty,” said Morningstar analyst David Whiston. “This is not a normal negotiation both in style and the demands they are asking.”

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