The anticipation is mounting as United Auto Workers President Shawn Fain prepares to address members and investors in a bargaining update on Friday afternoon. All eyes are on him, wondering if he will call for more workers to join the strike.
On September 15, the UAW commenced its strike against three major auto manufacturers: General Motors (ticker: GM), Ford Motor (F), and Stellantis (STLA). Fain initially instructed workers at one plant for each company to walk out. Subsequently, he expanded the strike on September 22 and September 29.
Unfortunately, the UAW has not provided any further details regarding the possibility of another expansion during Fain's upcoming speech on Friday.
It's worth noting that this week's speech will occur at 2 p.m. Eastern, unlike Fain's previous speeches which took place four hours later. The UAW has clarified that this timing change is purely a scheduling matter and holds no additional significance.
Currently, approximately 25,000 UAW workers out of a total of approximately 145,000 employed by the Detroit Three are participating in the strike. Additionally, around 4,400 workers have been furloughed by the auto manufacturers due to the strike's impact on various points in the production system.
Although the strike's scope is relatively narrow, it still has implications for both the UAW strike fund and the profit and loss statements of the auto makers. While the financial consequences are expected to be relatively minor, it also means that neither side is facing significant pressure to swiftly reach a resolution.
Notably, the strike has had minimal impact on third-quarter production as highlighted in a report by Benchmark analyst Mike Ward. Dealer inventories actually saw an increase, with numbers reaching 2.06 million vehicles by the end of September compared to 1.93 million at the end of August. In fact, this marks the highest inventory level since March 2021.
However, if the strike continues, inventories will inevitably decline. This could potentially result in higher car prices and offer an opportunity for other auto manufacturers like Toyota Motor (TM) to seize increased market share.
Shifts in the Auto Industry: Concerns for Workers, Companies, and Investors
In recent years, there has been a growing concern among workers, companies, and investors regarding the duration and impact of shifts in the auto industry. While short-term fluctuations may not be the primary worry, three key factors come into play: wages, competition, and stock valuation.
Workers' Perspective: Navigating Inflation
One major concern for workers is the need for wage increases that can effectively counter the significant inflation experienced in recent times. Ensuring a fair compensation package has become essential to address the growing cost of living.
Companies' Imperative: Competing Against Nonunion Players
Companies in the auto industry, such as Ford and GM, face intense competition from nonunion players like Tesla and Toyota. To maintain their market position and continue investing in innovative technologies, they must strategize and find ways to effectively compete in this dynamic landscape.
Investors' Insights: The Role of Wages in Stock Valuation
Investors closely monitor wage trends within the industry to accurately value stocks. Understanding where wages are heading enables them to make informed decisions and allocate their resources accordingly. As such, any changes in wage dynamics have direct implications on stock performance.
Recent Performance of Auto Stocks
Midday trading on Thursday revealed a decline of approximately 22% and 23% for Ford and GM stocks respectively over the past three months. In contrast, Stellantis shares saw an 8% increase. Notably, Stellantis' global presence provides some insulation from the effects of the ongoing strike. Nevertheless, its low trading multiple of less than four times estimated 2024 earnings suggests cautious investor sentiment. Comparatively, the S&P 500 trades at a multiple of around 17 times.
Furthermore, Toyota's stock experienced a 7% upswing while Tesla shares endured a 7% decline. However, it is essential to note that Tesla's stock is inherently volatile, with various factors impacting its performance, such as the recent weaker-than-expected third-quarter delivery results.
The Road Ahead: Best Hopes, Worst Preparations
Looking ahead, all parties involved - investors, workers, and the three major companies - should aspire to the best-case scenario while remaining prepared for potential challenges. Ideally, the United Auto Workers (UAW) will accept Ford's seventh offer, which could serve as a mutually beneficial agreement for both sides. Notably, an agreement with one company often sets the foundation for subsequent deals with the remaining two.
While this outcome is possible, it is crucial for all stakeholders to acknowledge the potential expansion and extension of the strike. This recognition will contribute to appropriate planning and resource allocation.
Ultimately, striking a balance between the interests and demands of workers, the competitive landscape for companies, and market dynamics for investors will determine the future course of the auto industry.