General Motors and Ford Motor are set to report third-quarter earnings this week, balancing the expectations of Wall Street and the United Auto Workers union amid ongoing strikes and contentious contract negotiations.
The automakers face a difficult tightrope walk. Strong profits could fuel the union’s demands for more concessions, while weak guidance risks scaring investors and further damaging stock prices.
GM reports Q3 earnings before the bell on Tuesday, with analysts expecting $1.88 EPS. Ford follows on Thursday after markets close, estimated at $0.45 EPS. But it’s the impact of the UAW strikes and talks on near and long-term guidance that has all eyes watching.
UAW Leverages Earnings to Push Demands
The UAW has consistently used automakers’ healthy earnings reports to promote its collective bargaining efforts.
“If GM, Ford and Stellantis are still very profitable for the third quarter, [the UAW] is going to claim that, ‘They’re being too cheap in bargaining, and they should give us more,’” said Art Wheaton, a labor professor at Cornell University.
Despite record contract offers, the UAW said Friday there is “more to be won,” declining to expand strikes impacting all Detroit Three automakers.
Q3 Strike Costs Manageable, Q4 More Severe
JPMorgan estimates Q3 strike costs hit $145 million at Ford and $191 million at GM. But those losses balloon in Q4 to $517 million and $507 million respectively as more plants halt production.
Ford’s Kentucky truck plant, producing its most profitable F-Series pickups, was the biggest blow. The stoppage could cost Ford $25 billion in annual revenue.
While most see the strikes as short-term, analysts acknowledge rising labor costs could impact automakers’ EV plans and long-term competitiveness against non-union rivals.
UAW Leverages Social Media, Populism in Talks
“The automakers appear to be struggling to adjust to this reality,” said Rod Lache of Wolfe Research, as the UAW embraces social media and populism to sway public opinion.
Recent offers from Detroit automakers included 23% wage hikes, cost-of-living adjustments and added vacation time. But the UAW says this is still insufficient given strong profits.
Labor Costs May Rise $3,000-$4,000 Per Vehicle
Lache estimates labor costs rising to $3,000-$4,000 per vehicle for Detroit automakers, compared to $2,500-$3,000 for non-union competitors. This could compound other challenges in batteries, distribution and design.
Strikes Slow Electric Vehicle Progress
Ford paused construction on a $3.5 billion EV battery plant in Michigan, citing uncertainty from UAW talks. GM delayed EV truck production at a Michigan plant by at least a year to manage investments.
Tesla CEO Elon Musk also worries high interest rates will dampen EV demand, as sales slow.
Wall Street will watch for EV updates from legacy automakers balancing union demands with the transition to electric.
Automakers Walk Fine Line With Messaging
Automakers must walk a fine line communicating the financial impacts of the UAW strikes.
Too bullish, and they fuel union arguments around affordability. Too bearish, and they risk spooking investors and hurting stock prices further .
“When you’re in bargaining you want to use every piece of news that’s in your favor,” said Wheaton.
But dire warnings could also backfire, hardening the union’s stance. Automakers will likely include caveats around uncertainty in any forward guidance.
Balance of Power Has Shifted Toward UAW
“The balance of power has shifted toward the union,” said Harley Shaiken, a labor expert at the University of California, Berkeley.
The UAW feels confident in demanding more after workers kept plants running in the pandemic. Public support also appears on the union’s side.
This dynamic shows in the UAW’s more aggressive approach leveraging social media and consumer angles to pressure automakers. The union is “bargaining in public” to an unprecedented degree.
Automakers Hope to Avoid Repeat of Costly Strike
The last major UAW strike in 2019 cost GM around $4 billion in lost profits. Automakers want to avoid a repeat.
But the UAW seems emboldened to hold out longer to achieve its aims. Negotiations are complex with benefits, wages, profit sharing and new EV jobs all in play.
‘We’re fighting for what’s right,” UAW president Ray Curry told members. Resolution may depend on which side blinks first.
Until agreements are reached, automakers tread cautiously reporting Q3 earnings and guiding Q4 amid so much uncertainty. The stakes are high for both management and labor.
Conclusion
As the UAW strikes continue, GM and Ford walk a tightrope reporting Q3 earnings. Automakers aim to balance union demands with protecting profitability and appeasing investors. The coming weeks will test their ability to navigate economic uncertainty and a shifting labor landscape.
Competitiveness in the future auto industry hinges on striking the right bargain. Check back for the latest as talks progress. In the meantime, browse our other auto industry analyses.
