Crossroads – The UAW Strike Threat
Auto companies peaked in the early 2000s before stressful economic conditions like The Great Recession sent companies like GM to the brink of bankruptcy. In the decade following, these businesses were able to rebound but failed to reach their previous levels, with poor business strategies playing a major role.
However, the pandemic recovery has brought light to the industry, and they now play a major role in the future moving forward. Like the housing market, demand has continued to rise while inventories have stayed low due to supply chain woes, and as a result less cars are being sold for much higher prices, giving companies and dealerships record profits. This trend seems to be the new normal, but the question of what needs to be done with these profits is the latest battle for the auto industry.
Executives like CEO Jim Farley of Ford want to utilize the profits to fuel the transition to electric vehicles because of how costly the maneuver is, considering many early EV models are money losers. Tesla is currently the leader in EVs by a sizable margin, requiring a lot of investment into the space to catch up, and using these profits would go a long way in closing the gap.
On the other hand, the UAW, or United Auto Workers union, believes that pay for auto workers needs to increase to combat inflation and properly compensate them for their work. This comes as Ford, GM, and Stellantis are negotiating a four-year labor contract with the UAW, amounting to 146,000 factory workers. Both sides must negotiate a deal before Friday, or the workers will go on strike, and one of the demands that the UAW isn’t budging on is a 40 percent increase in pay for workers, looking at unions like the one at UPS for inspiration. If a strike were to occur, it would be disastrous for the auto industry as the Anderson Economic Group estimates a 10-day walkout would cause $5 billion in lost economic output, while the UAW’s strike fund can cover a two-month walkout for employees. It’s up to the auto companies to weigh the benefits and harms, and we may see increased volatility throughout this week.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
