The third-quarter earnings reports and future guidance from General Motors (GM) and Ford Motor are eagerly anticipated this week. However, the automakers face a challenging situation as they navigate ongoing strikes and contract negotiations with the United Auto Workers (UAW) union. This delicate balance becomes even more critical as the outcome of these reports could impact the duration of work stoppages and fuel the union’s claim for additional concessions.
If GM and Ford exceed Wall Street’s expectations and display bullish figures, it would further support the UAW’s contention that these companies can afford more concessions due to their healthy profits. This outcome could potentially prolong the strikes and contentious negotiations. Conversely, if the automakers adopt a bearish stance in their guidance, they risk instilling fear in Wall Street and further depressing their already discounted stock prices.
GM is projected to report third-quarter earnings of $1.88 per share, while Ford is estimated to report earnings of 45 cents per share. Investors will certainly take note of these results, but the impact of the UAW strike and negotiations on near-term earnings and longer-term plans of GM, Ford, and Stellantis (the automaker also facing strikes) is of primary concern. The UAW also closely monitors these developments. Previously, they have utilized earnings reports and executive statements to bolster their efforts and collective bargaining.
The UAW has emphasized that there is “more to be won” even as record contracts have been secured with the automakers. Although there are no immediate plans to expand work stoppages, the targeted strikes against the major automakers, which commenced on September 15, are anticipated to have a greater impact in the fourth quarter compared to the previous three months. In an effort to exert more pressure, the UAW has gradually expanded the work stoppages to encompass additional assembly plants and distribution centers.
While GM has disclosed that the work stoppage cost them approximately $200 million in lost production during September, Ford and Stellantis have yet to announce their estimates for the impact of the strikes. Analysts from JPMorgan estimate that the strikes cost Ford $145 million and GM $191 million in terms of earnings before interest and taxes during the third quarter. For the fourth quarter, those losses are expected to escalate to $517 million for Ford, specifically due to the work stoppage at its most profitable U.S. truck plant in Kentucky, and $507 million for GM. The Kentucky plant, responsible for $25 billion in revenue annually, has been the most crucial strike initiated by the union, significantly impacting production of F-Series Super Duty pickup trucks, Ford Expedition, and Lincoln Navigator SUVs.
While some analysts view the UAW strike as a short-term obstacle, there are concerns about the substantial costs associated with a future concessionary deal. These costs could affect automakers’ plans for electric vehicles (EVs) and their long-term competitiveness compared to non-union automakers. Labor costs for the Detroit automakers, based on recent proposals, are expected to increase by $3,000 to $4,000 per vehicle, surpassing the costs of competitors at $2,500 to $3,000. Analyst Rod Lache from Wolfe Research expressed apprehension about the challenges faced by OEMs (original equipment manufacturers), including battery competitiveness, distribution, and design. Additionally, Lache voiced concerns regarding the automakers’ understanding of the long-term risks associated with the UAW’s new strategies, such as bargaining in public, utilizing social media, and capitalizing on populism.
The negotiations and ongoing strikes have already had consequences for the electric vehicle sector, which was already facing slower-than-expected sales due to inflation, high interest rates, and inadequate infrastructure. Ford recently announced a pause in the construction of a new $3.5 billion battery plant in Michigan until it has confidence in its ability to operate the plant competitively amid UAW discussions. Similarly, GM revealed that the production of all-electric trucks at a Michigan plant will be delayed by at least a year. The motive behind this adjustment is to better manage capital investments and implement improvements that will enhance the profitability of the new EVs. GM’s spokesperson asserts that the change in plans is unrelated to contract negotiations with the UAW. However, given the contentious nature of the talks, it is undeniable that EVs are involved, and the current contract proposals by the automakers are expected to be more costly compared to previous years. Therefore, the industry and Wall Street will closely monitor updates on EV progress and demand. Even Elon Musk, CEO of Tesla, which dominates the EV market, expressed concerns about demand for electric vehicles during Tesla’s recent earnings report. He cited the high interest rate environment as a cause for worry.
The upcoming third-quarter earnings reports and future guidance from GM and Ford must be weighed carefully. The outcomes have the potential to impact not only the ongoing strikes and negotiations with the UAW but also the long-term plans and competitiveness of these automakers. The costs associated with a concessionary deal may affect EV plans and various aspects of the industry’s future landscape. All eyes are on these reports as Wall Street, the UAW, industry analysts, and investors eagerly await the updates.