Members of the United Auto Workers union picket outside General Motors’ Detroit-Hamtramck assembly plant in Detroit, Sept. 25, 2019.
Michael Whelan/CNBC
DETROIT — The Oracle of Omaha is cutting investment in the U.S. auto industry amid union talks — and probably for good reason.
Warren Buffett’s Berkshire Hathaway said this week it nearly halved its stake General Motors in the second quarter. While the company did not disclose its reasons, the U.S. auto industry is expected to end the year with a challenging sales outlook, dogged by contentious contract talks between the UAW and GM. Ford and star
The talks, which involve nearly 150,000 U.S. auto workers, could cost the automaker billions in additional labor costs, downtime costs, or, in the worst case, both.
The new UAW leadership team called the talks a “defining moment” for the union. President Shawn Fain has delivered a stern message and some drama, including throwing Strandis’ contract proposal in the trash, and there’s been little talk of “give and take” or “win-win” trade.
“If there’s no deal, they’re ready to strike,” said Melissa Atkins, Obermeyer’s labor and employment partner. As far as history goes, there could be strikes.”
The union’s aggressive efforts are a boon for organized labor and the embattled UAW after a year-long federal corruption probe sent several top leaders to jail for bribery, embezzlement and other crimes , the UAW is trying to regain its footing — but not for the company or its shareholders. .
Here’s what investors should know ahead of the expiration date of the current contract between the Detroit automaker and the UAW at 11:59pm ET on Sept. 14.
$80 billion
The UAW’s current contract proposals would add more than $80 billion in labor costs to major U.S. automakers over the life of the contract, according to Bloomberg News. first reported early this month.
“One might think of these UAW contracts as a set of three large purchase orders designed to secure the labor required to assemble future vehicles, parts and assemblies – worth a total of approximately $7 billion to $80 billion over the next four years, Kristin Dziczek, an auto policy advisor at the Detroit Federal Reserve Bank of Chicago, wrote in a note. Wednesday’s blog post.
UAW President Shawn Fain greets workers at the Stellantis Sterling Heights Assembly Plant in Sterling Heights, Mich., U.S., July 12, 2023, marking the start of contract negotiations.
Rebecca Cook | Reuters
These demands include a 46% increase in wages, a return to traditional pensions, an increase in the cost of living, a reduction in the working week from 40 to 32 hours and increased benefits for retirees.
If the UAW meets those requirements, without any changes to other benefits, the automaker’s hourly labor costs would more than double, from at least $64 an hour to more than $150 an hour, according to media reports.
That would represent a significant increase over wage increases during the previous four-year agreement, according to estimates from the Center for Automotive Research. The 2019 deal is expected to add $11 to then-Fiat Chrysler (now Stellantis) average hourly labor costs per worker over the life of the contract, compared with $8 per worker at GM and Ford.
Under the current compensation structure, UAW members start at about $18 an hour and can top out at more than $30 an hour after a four-year “growth” period.
$5 billion
The shutdown of nearly 150,000 UAW workers at GM, Ford and Stellantis will result in After 10 days, more than $5 billion was lost, according to Anderson Economic Group, a Michigan-based consultancy that closely tracks such events.
AEG estimated total economic damage by calculating potential losses to UAW workers, manufacturers and the broader auto industry if the parties were unable to reach a tentative agreement before the current contract expires.
In a separate analysis, Deutsche Bank previously estimated that the strikes would cost each affected automaker about $400 million to $500 million in lost weekly production.
Strikes can take many forms: a national strike, where all workers under the contract stop working, or a targeted stoppage at certain factories over local contract issues. As Fein mentioned, a strike against all three automakers would be the most impactful for the union, but also the riskiest and most costly.
$825 million
The UAW’s strike fund holds more than $825 million to pay eligible strike members. The strike pay for each member is $500 a week, up from $275 in 2022.
Then-presidential candidate President Joe Biden speaks against a backdrop of American-made vehicles and UAW logos as he speaks about new proposals to protect American jobs during a campaign event in Warren, Mich., Sept. 9, 2020.
Leah Millis | Reuters
Strike pay is available after the eighth day of strike. Bonus checks are paid the week before the Thanksgiving and Christmas holidays. Members must also be in good standing with the union and picket to receive aid.
UAW members can also seek outside employment from the union, but they will no longer receive strike pay if their wages are $500 or more per week. They will continue to receive medical and prescription drug assistance, according to the union website.
Assuming approximately 150,000 eligible workers, that works out to roughly $75 million in total strike wages per week. So the $825 million in funding would cover about 11 weeks.A word of caution: this does not include union-borne health care costs such as Interim COBRA plan.
The UAW is scheduled to hold a procedural strike authorization vote next week, which would grant union leaders the ability to strike if necessary. The measure has historically passed overwhelmingly.
1.5 million
If the union decides to strike at all three Detroit automakers, production losses could quickly mount.
S&P Global Mobility expects the 10-week strike to mean lost production of about 1.5 million vehicles, according to an investor note from Mizuho Securities America Inc.
GM said at the time that a 40-day strike against GM during the final round of negotiations in 2019 resulted in a loss of 300,000 vehicle production.also spent GM said the automaker earned $3.6 billion.
Industry experts believe a strike against all or any automakers could affect the companies’ operations and profits faster than four years ago, as the U.S. auto industry is still recovering from supply chain problems caused by the coronavirus pandemic .
Automakers’ vehicle inventory levels are also lower than they were at the time of the negotiations four years ago.
Cox Automotive said it entered 2019 contract negotiations with 3.73 million U.S. vehicle supplies, essentially enough to sustain 86 days of sales under normal conditions at the time. The industry is currently producing close to 2 million units, with a supply of 56 days.
“In 2019, there was considerable slack in the market. There’s very little slack now,” AEG chief executive Patrick Anderson said in a webinar with the Automotive News Association on Thursday. “If we were going to strike, Then within the first week, things start to get dire for every automaker.”
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