Ford CEO Jim Farley, left, and General Motors CEO Mary Barra
Reuters; General Motors
DETROIT – Ready to walk a tightrope?
General Motors And Ford engine are announcing third quarter results and guidance this week amid ongoing strikes and collective bargaining with the United Auto Workers union. And it’s a difficult balance.
If automakers are bullish and beat Wall Street’s expectations, it could strengthen the union’s main argument that companies can afford more concessions while profits are healthy – potentially prolonging work stoppages and contentious talks.
But if the companies, which are likely to offer many caveats in future comments, become too pessimistic about their forecasts or the impact of the UAW efforts, they risk spooking Wall Street and driving down their already reduced stock prices.
GM is expected to report third-quarter profit of $1.88 per share before Tuesday’s close, while Ford is expected to report profit of 45 cents per share after Thursday’s close. This is according to average estimates from LSEG, formerly known as Refinitiv.
While investors will certainly take note of the third-quarter results, the impact of the UAW strike and negotiations on the near-term profits and longer-term plans of Ford and GM, as well as union-represented automaker Stellantis, is also notable.
The union will also be watching.
Members of the United Auto Workers (UAW), Local 230, and their supporters walk the picket line in front of the Chrysler Corporate Parts Division in Ontario, California, on September 26, 2023.
Patrick T Fallon | AFP | Getty Images
The UAW has consistently used earnings reports and comments from executives, including GM CEO Mary Barra and Ford CEO Jim Farley, to promote its efforts and collective bargaining.
“When you’re negotiating, you want to take whatever news is in your favor and get it out in the open and to the table,” said Art Wheaton, a labor professor at Cornell University’s Worker Institute. “If GM, Ford and Stellantis are still very profitable in the third quarter, [UAW’s] I will claim: ‘You are negotiating too cheaply and should give us more.'”
The union said Friday there was “more to gain” despite automakers’ record contracts. However, an extension of the work stoppages was rejected.
Still, the targeted strikes against the three major automakers that began Sept. 15 are expected to have a larger impact in the fourth quarter than in the previous three months. The UAW has slowly expanded the work stoppages to additional assembly plants and distribution centers.
GM said the September work stoppage cost about $200 million in lost production. Ford and Stellantis, which report quarterly results on October 31, did not disclose their estimates on the impact of the strikes.
Effects of ADRs
JPMorgan estimates third-quarter strike costs as measured by earnings before interest and taxes were $145 million at Ford and $191 million at GM.
Those fourth-quarter losses are expected to have ballooned to $517 million for Ford – after the union filed a lawsuit Work stoppage at its most profitable US truck plant in Kentucky – and $507 million for GM.
The Kentucky plant, which generates $25 billion in annual sales, was by far the most important union-initiated strike. The company produces F-Series Super Duty pickups as well as Ford Expedition and Lincoln Navigator SUVs.
While many analysts continue to view the UAW strike as a short-term issue, some acknowledge that the high cost of an eventual concession agreement could hurt automakers’ electric vehicle plans and long-term competitiveness compared to other non-union automakers.
United Auto Workers President Shawn Fain during an online broadcast briefing union members on negotiations with Detroit automakers on October 6, 2023.
Wolfe Research analyst Rod Lache said Monday that based on recent proposals, labor costs for Detroit automakers are expected to rise to $3,000 to $4,000 per vehicle, compared with costs of $2,500 to $3,000 for competitors .
“This could further exacerbate challenges for OEMs [original equipment manufacturers] Face (e.g. competitiveness in batteries, sales, design). And we also worry that OEMs may still not fully recognize the long-term risks associated with the UAW’s new course – including public negotiations, social media and populism,” Lache said in an investor note. “Automakers seem to be struggling to adapt to this reality.
Recent offers from GM and Ford included 23% wage increases over the life of the contract, reinstatement of cost-of-living adjustments, additional vacation days and other improvements compared to 2019 contracts.
The negotiations have already had an impact on electric vehicles Sales are slower than expected due to inflation, high interest rates and lack of infrastructure.
Ford announced last month that it is pausing construction of a new $3.5 billion battery plant in Michigan until the company is “confident” it can operate the plant competitively under the UAW talks.
And GM said this week it would delay production of all-electric trucks at a Michigan plant by at least a year to “better manage capital investments” and implement improvements to make the new electric vehicles more profitable.
A GM spokesman said the change in plans was not related to the company’s contract negotiations with the UAW. However, the controversial talks are actually about electric vehicles, and the company’s current contract proposals are likely to be more expensive than those of previous years.
Wall Street will be watching for updates on electric vehicle progress and demand.
Even Tesla CEO Elon Musk, whose company leads electric vehicle sales, expressed caution about electric vehicle demand when Tesla reported its results last week.
“I’m concerned about the high interest rate environment we’re in,” Musk said. “If interest rates remain high or even rise further, it will be even more difficult for people to buy the car.”
—CNBC’s Michael Bloom contributed to this report.