United Auto Staff members on strike picket outside General Motors’ Detroit-Hamtramck Assembly plant in Detroit, Sept. 25, 2019.
Michael Wayland / CNBC
DETROIT – The Oracle of Omaha is cutting exposure to the U.S. automotive industry amid union negotiations — potentially for good reason.
Warren Buffett’s Berkshire Hathaway this week said it nearly halved its stake in General Motors within the second quarter. While the firm didn’t disclose its reasoning, the sale front runs what is predicted to be a difficult end of the yr for the U.S. automotive industry, stricken by contentious contract talks between the United Auto Staff union and GM, Ford Motor and Stellantis.
The talks, which cover nearly 150,000 U.S. auto employees, could cost the automakers billions of dollars in additional labor costs, work stoppages or, in a worst-case scenario, each.
Latest UAW leadership team has dubbed these talks the union’s “defining moment.” President Shawn Fain has already deployed harsh messaging and a couple of theatrics, including throwing contract proposals by Stellantis in a trash bin, and there is been little to no discuss “give and take” or “win-win” deals.
“They’re able to strike if a deal doesn’t occur,” said Melissa Atkins, a labor and employment partner at Obermayer. “Getting in with that mindset, I anticipate it being very contentious … and just given the history, there probably will probably be a strike.”
Aggressive efforts by the union are great for organized labor and the embattled UAW, which is attempting to regain its footing after a yearslong federal corruption probe landed several top leaders in prison for bribery, embezzlement and other crimes — but not for the businesses or their shareholders.
Listed below are the numbers investors should know ahead of the expiration date for current contracts between the Detroit automakers and UAW at 11:59 p.m. ET on Sept. 14.
$80 billion
Contract proposals made by the UAW at this point would add greater than $80 billion in labor costs for every of the most important U.S. automakers over the length of the contract, Bloomberg News first reported earlier this month.
“One might consider these UAW contracts as a set of three large purchase orders to secure the labor needed to assemble future vehicles, parts, and components—contracts which are collectively value roughly $70–$80 billion over the course of the following 4 years,” Kristin Dziczek, automotive policy advisor for the Federal Reserve Bank of Chicago’s Detroit branch, wrote in a Wednesday blog post.
United Auto Staff President Shawn Fain greets employees on the Stellantis Sterling Heights Assembly Plant, to mark the start of contract negotiations in Sterling Heights, Michigan, U.S. July 12, 2023.Â
Rebecca Cook | Reuters
The demands include a 46% wage increase, restoration of traditional pensions, cost-of-living increases, reducing the work week to 32 hours from 40 and increasing retiree advantages.
If the UAW gets those demands, with none changes to other advantages, the all-in hourly labor cost for the automakers would greater than double from no less than $64 per hour to greater than $150 per hour, based on media reports.
That might be a big increase over wage hikes seen throughout the previous four-year agreements, based on estimates from the Center for Automotive Research. The 2019 deals were projected to extend average hourly labor costs over the length of the contracts by $11 per employee for then-Fiat Chrysler, now Stellantis, and $8 per employee at GM and Ford.
Under the present pay structure, UAW members start at about $18 an hour and have a “grow-in” period of 4 years to achieve a top wage of greater than $30 an hour.
$5 billion
A piece stoppage by nearly 150,000 UAW employees at GM, Ford and Stellantis would lead to an economic lack of greater than $5 billion after 10 days, based on Anderson Economic Group, a Michigan-based consulting firm that closely tracks such events.
AEG estimates the entire economic loss by calculating potential losses to UAW employees, the manufacturers and to the auto industry more broadly if the edges cannot reach tentative agreements before the present contracts expire.
In one other evaluation, Deutsche Bank previously estimated that a strike would hit earnings at each affected automaker by about $400 million to $500 million per week of production.
Strikes could take several forms: a national strike, where all employees under the contract stop working, or targeted work stoppages at certain plants over local contract issues. A strike against all three automakers, as Fain has alluded to, could be essentially the most impactful but additionally the riskiest and costliest for the union.
$825 million
The UAW has greater than $825 million in its strike fund, which it uses to pay eligible members who’re on strike. The strike pay is $500 per week for every member – up from $275 in 2022.
Speaking in front of a backdrop of American-made vehicles and a UAW sign, President Joe Biden, then a presidential candidate, speaks about recent proposals to guard U.S. jobs during a campaign stop in Warren, Michigan, Sept. 9, 2020.
Leah Millis | Reuters
Strike pay is obtainable after the eighth day of a piece stoppage. A bonus check is paid the week prior to the Thanksgiving and Christmas holidays. Members also have to be in good standing with the union and take part in picket lines to receive the help.
UAW members may also seek outside employment from the union, nonetheless if their pay is $500 or more per week, then they’ll now not receive strike pay. They may proceed to receive medical and prescription drug assistance, based on the union’s website.
Assuming 150,000 or so eligible employees, that is all-in weekly strike pay of about $75 million. A fund of $825 million, then, would cover about 11 weeks. One caveat: That does not include health care costs that the union would cover, equivalent to temporary COBRA plans.Â
The UAW is scheduled to carry a procedural strike authorization vote next week, which might grant union leaders the power to strike, if warranted. The measure historically passes overwhelmingly.
1.5 million
If the union decides to strike against all three Detroit automakers, production losses would quickly add up.
S&P Global Mobility estimates a 10-week strike would mean lost production of roughly 1.5 million units, based on an investor note from Mizuho Securities USA.
A 40-day strike against GM throughout the last round of negotiations in 2019 led to a production lack of 300,000 vehicles, the corporate said then. It also cost the automaker $3.6 billion in earnings, GM said.
Industry experts argue that a strike against all or any of the automakers would likely impact the operations and bottom lines of the businesses more quickly than 4 years ago because the U.S. auto industry continues to be recovering from supply chain problems caused throughout the coronavirus pandemic.
Vehicle inventory levels for the automakers are also lower than they were heading into the talks 4 years ago.
Heading into 2019 contract negotiations, U.S. vehicle supply was 3.73 million — essentially enough units to last 86 days of selling under normal conditions on the time, based on Cox Automotive. The industry is currently just below 2 million units, with 56 days’ supply.
“In 2019, there was quite a slack in there. There’s almost no slack now,” AEG CEO Patrick Anderson said Thursday during a webinar with the Automotive Press Association. “If we’re to get a strike, inside the first week, the numbers begin to get serious for every of the automakers.”
