The so-called “Big Three” auto companies have become auto stocks to sell. They have been impacted very negatively as a result of the ongoing United Auto Worker (UAW) strikes. Nearly 13,000 of the UAW’s 146,000 members have coordinated walkouts at the plants of the respective manufacturers.
UAW members are seeking 40% raises while representatives of the Big Three have countered with 20% raises over 4.5 years. The gap is indicative of a low likelihood of solution in the immediate future. It is expected that the strikes will continue for weeks based on current estimates. Those estimates suggest that a month-long strike would result in lost profits between $7 to $8 billion for the three firms. Until the strike is over the Big Three are auto stocks to sell from your portfolio before the damage is done.
Ford (F)
Ford (NYSE:F) stock is certain to suffer due to the strikes as are the other two manufacturers. However, it appears that Ford will be spared relative to the other two. Ford makes its F-Series trucks at that location which CEO Jim Farley has noted is its most profitable globally. The company manufactures its most lucrative vehicles, heavy duty F-Series trucks, in Eastern Jefferson county which is also home to Louisville, Kentucky.
It had been expected that the UAW was going to strategically target plants where high-margin vehicles are made by each of the big three. Louisville was a clear target. However, Ford struck a deal before that could happen. The UAW is therefore not striking at that plant as a concession to Ford for playing ball.
That said, Ford isn’t out of the woods yet. It’s just doing relatively better than its competitors in regard to strikes which haven’t expanded at Ford’s plants. Consider also that Ford was forced to retool its Dearborn, Michigan plant which led to a six-week shutdown during the summer. That plant is where Ford makes its electric F-150 Lightning trucks. Expect all of these factors to affect F stock in the third quarter and beyond.
General Motors (GM)
General Motors (NYSE:GM) stock is headed lower as a result of the strike. That shouldn’t be news to anyone following the situation. The longer the strike continues, the greater the losses. That is also clear to anyone following the situation.
It’s fairly certain that the strike will continue for one very simple reason: GM and the UAW are very far apart on several key issues. Take, for example, the top wage rate progression timeline. GM management has proposed to cut the time to reach the top wage rate to 4 years from 8 years. The UAW wants to see workers reach the top pay rate 90 days after becoming full employees.
The GM strike began in Wentzville, Missouri, but its effects are beginning to ripple throughout GM’s network. The company had to temporarily shut down its Fairfax, Kansas plant which normally receives stamped parts from the Wentzville plant. It’s becoming very clear that GM and others are going to suffer the immediate effects of the shut downs financially. What remains less clear is how much more the manufacturers are going to absorb in increased fees to cover increases to wages and benefits. Whatever the final number, the result is going to negatively impact General Motors.
Stellantis (STLA)
Stellantis (NYSE:STLA) is the last of the big three automakers whose stock is being negatively impacted by the strikes. The company produces Chrysler, Dodge, Jeep and Ram vehicles among others.
Stellantis is expected to lay off 300 workers in Ohio and Indiana citing effects of the strikes at the firm’s Jeep plant in Toledo, Ohio, where they first began. 190 UAW workers walked off the job at an Alabama plant that supplies Mercedes (OTCMKTS:MBGYY) vehicles, a subsidiary of Stellantis.
It’s difficult to imagine that Stellantis will soon cave to UAW demands. Those demands include 30% pay raises over 4 years, a 32-hour workweek for 40 hours of pay and restoration of pensions. Those demands are unlikely to make logical sense to most as their effects on the bottom line would be drastic. However, I believe that claims of Stellantis workers regarding pay scales for new workers doing similar jobs have some merit. New workers performing the same job on a production line can make $15 while their counterparts make $30 due to tenure.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
