By UAW President Shawn Fain expressed the sentiment of the union’s membership in a Friday news release, stating, “Our union’s membership is clearly fed up with living paycheck-to-paycheck while the corporate elite and billionaire class continue to make out like bandits. The Big Three have been breaking the bank while we have been breaking our backs.”
The term “Big Three” refers to General Motors (ticker: GM), Ford Motor (F), and Chrysler parent Stellantis (STLA). The frustration stems from the perception of the disparity in wealth distribution.
No Cause for Alarm
Ford acknowledged the situation and shared their commitment to American production. In a statement, they said, “Ford is proud to build more vehicles in America and employ more UAW-represented hourly workers in America than any other automaker. We look forward to working with the UAW on creative solutions during this time when our dramatically changing industry needs a skilled and competitive workforce more than ever.”
Similarly, GM voiced their dedication to productive negotiations, stating, “We continue to work hard with the UAW every day and bargain in good faith to ensure we get this agreement right for our team members, our customers, suppliers, the community, and the business.”
Stellantis saw the vote as a procedural step in the ongoing discussions. They emphasized their commitment to finding a balanced agreement that addresses both employee concerns and the company’s vision for the future.
Market Reaction
Despite the news, the stock market does not appear to be in panic mode. GM stock is down 0.5% in Friday trading, while Ford and Stellantis shares are up 0.6% and 1.2% respectively. The broader market, represented by the S&P 500 and Dow Jones Industrial Average, is also enjoying gains of 0.4% and 0.6% respectively.
It remains to be seen how negotiations will unfold and what impact they will have on the industry. Both sides must work together to find common ground that addresses the concerns of UAW members while ensuring the continued success and competitiveness of the Detroit automakers.
Nervousness Surrounds Labor Negotiations as Automaker Shares Experience Decline
In recent times, there has been a growing sense of unease within the market as labor negotiations cast a shadow over the share prices of automotive giants. Ford and GM have witnessed a significant decline of approximately 13% in share value over the past month. Concurrently, the S&P 500 experienced a 4% drop during the same period. Although Stellantis stock has only seen a 2% decrease, it is important to note that its shares are trading at a relative discount, with 3.2 times projected 2024 earnings in comparison to GM’s and Ford’s multiples of 4.9 and 6.2, respectively, according to FactSet.
One cannot ignore historical patterns suggesting that automaker shares tend to underperform during labor negotiations, only to recover in the months following the resolution of the negotiation. This was evident in the case of GM shares in 2019 when they dipped by roughly 10% during the three-month duration of union negotiations and strikes. Simultaneously, the S&P 500 remained relatively stable throughout the same timeframe. Shortly after the strike came to an end with a new labor deal, GM shares swiftly rebounded to pre-strike levels.
Nevertheless, it is crucial to recognize that negotiations and strikes typically do not have a lasting impact on shares in the long run. While labor relations are undoubtedly significant for every company, strikes introduce an element of volatility. Nonetheless, investors should anticipate wage increases within the new UAW-automaker contract as negotiations ensue. Recent agreements executed by United Parcel Service (UPS) and Spirit AeroSystems (SPR) encompassed wage hikes averaging between 5% and 6% annually. Such salary increments are aimed at offsetting the effects of higher inflation currently prevailing in the market.
However, labor negotiations, strikes, and potential strikes are not the sole factors influencing the state of car stocks. Investors are also grappling with the challenges posed by declining car prices and escalating interest rates, both of which impact the demand for vehicles and, in turn, the profit margins of automakers.
Over the past 12 months, GM and Ford have seen a substantial decline in their shares, with drops of approximately 19% and 26% respectively. Conversely, Stellantis shares have demonstrated an increase of around 28%. Nonetheless, it is important to bear in mind that Stellantis initially entered the market as a significantly cheaper stock. Moreover, with its current domicile situated in Europe and its headquarters located in the Netherlands, European investors tend to hold a larger proportion of its shares.
In conclusion, while labor negotiations may temporarily disrupt the performance of automaker shares, historical trends and market insights suggest that these fluctuations are transitory in nature. Investors must navigate a complex landscape encompassing labor negotiations, fluctuating car prices, and rising interest rates when assessing the future prospects of automotive stocks.
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