UAW threatens to strike, affecting the Detroit 3 of GM, Ford & Stellantis.
ABC News has reported the following:
The union has asked for 46% raises in general pay over four years — an increase that would elevate a top-scale assembly plant worker from $32 an hour now to about $47. In addition, the UAW has demanded an end to varying tiers of wages for factory jobs; a 32-hour week with 40 hours of pay; the restoration of traditional defined-benefit pensions for new hires who now receive only 401(k)-style retirement plans; and a return of cost-of-living pay raises, among other benefits.
Over the past decade, the Detroit Three have emerged as robust profit-makers. They’ve collectively posted net income of $164 billion, $20 billion of it this year. The CEOs of all three major automakers earn multiple millions in annual compensation.
From the above, the demand for a 46% pay increase looks steep in contrast to the accumulated inflation rate of 18% since Jan 2020 as per BLS. On top of this, there is a reduction of 20% in working hours and extension of pension benefits and cost of living pay increases.
Yahoo Finance has reported the following:
The union has promised to strike at any automaker who has not agreed to a deal by the Thursday deadline. Consulting firm Anderson Economic Group estimates that a strike at all Big Three automakers by the UAW could result in a $5.6 billion hit to US GDP after only 10 days, and UAW lost wages would total almost $860 million. Furthermore, a short strike could also trigger recessions in auto-dependent states like Michigan.
NBC News has reported the following on the loss to various automakers:
GM and Ford stand to lose $2.5 billion and $3 billion in revenue, respectively, for every week a strike lasts, Goldman Sachs Equity Research estimated. By comparison, agreeing to a 40% wage bump for UAW members would cost GM $4 billion to $5 billion and Ford $5 billion to $6 billion over four years. Goldman didn’t provide estimates for Stellantis.
The UAW has amassed $825 million in a strike fund that would pay eligible members $500 a week during a work stoppage, a sum that is expected to last for up to around 11 weeks but could be depleted sooner because of health care costs.
CEO-worker salary comparison
Let us look at the aggregated CEO-to-worker compensation ratio in the USA from 1965 to 2021 provided by Statista:
Now, let us look at the pay ratio of the median worker in contrast to their top management by Aflcio:
From the above, we notice that Ford has a ratio of 281:1 whereas General Motors has a ratio of 362:1. Looking at the above, is it reasonable for the workers to demand, in contrast to what their top management is earning?
My muse
Most people would not oppose having more income. However, we should try to understand the impact on the market, business and the economy too.
I am wondering how would this translate into price increases for the consumers. The impact of accepting the above conditions would lead to both near-term and long-term cost increases. Should we be surprised if the automakers bite the bullet, take on the cost increases and pass these increases to the consumers? The entire costing structure would need to be reviewed especially with the cost of living component and pension scheme.
I think that a compromise should be reached but there would be some disruptions going on. UAW has $825M worth of strike funds that would pay the workers should they go on strike.
Eventually, the Detriot 3 would end up having higher costs and could be less price competitive. Would this render the brands less competitive and attractive especially when there are other electric vehicles (EV) players challenging in the auto marketplace? Could this lead to a decline in the affected brands? This is possible and the coming earnings would be able to shed more light on this matter. The outcomes point to inflationary price impacts in the coming months.
The disruptions of the strike go beyond the production of the vehicles but will also impact the livelihood of the workers. With a reported 60% living paycheck to paycheck, this could lead to more debts being incurred for some. At the same time, this could add to the supply crunch pending the length of the strike. The partners and suppliers to the Detriot 3 would be affected by automakers being unable to receive packaging materials, parts and components. The disruption to the rest of the supply chain goes to the trucking, warehousing, suppliers and even more. This could lead to other costs and delays being incurred and also the business deliverables of their partners.
As we head into a peak year-end season, there could be other ripple effects to the supply chain. It is not about pushing back the orders especially if there are capacity to contend with. When the deliveries are pushed back, re-scheduling is possible based on the capacity that remains available. Logistics players may take on other orders during the disruptions.
Essentially, things could get messy beyond the factories of the affected Detriot 3. Thus, we can anticipate that some of the deliveries and supplies could face some challenges. Let us monitor and hopefully, a resolution can be reached soon.
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