The impending threat of a strike by the United Auto Workers (UAW) union against Detroit’s Big Three automakers—General Motors, Ford, and Stellantis—is sending ripples of concern throughout the automotive industry and beyond. The UAW, representing a substantial workforce of nearly 150,000 members, has signaled their readiness to halt production if a new contract isn’t negotiated before the existing ones expire on September 14th at midnight. Such a strike would not only paralyze the assembly lines but also bring forth a cascade of consequences affecting not only the automakers but also their suppliers, workers, and the broader economic landscape.
The UAW’s decision to authorize a strike, with an overwhelming 97% majority, hinges on contentious issues surrounding wages and pension plans. Past strikes by the UAW have had a lasting impact, with the most notable being the 42-day standoff against General Motors in 2019, the longest in recent memory. Prior to that, there were shorter strikes at GM and Chrysler in 2007, and even more prolonged disputes were commonplace before 1976.
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Market sentiment appears to align with the possibility of a strike, as indicated by a survey conducted by Morgan Stanley. A staggering 82% of investors anticipate a strike, with 58% considering it “extremely likely.” Furthermore, many experts foresee the potential for wage inflation ranging from 20% to 40% over the next four years as a result of these contract talks.
The significance of a strike in the automotive industry cannot be overstated. The Detroit Three collectively account for approximately 40% of new light vehicle sales in the United States by units. If a strike occurs, IHS Markit estimates that North American vehicle production could be disrupted by about 75%. This translates into a substantial loss of output, with the possibility of up to 500,000 vehicles not being manufactured during a month-long strike, a significant dent in the industry’s already challenged supply chain.
Beyond the immediate industry impact, a strike would also resonate throughout the broader economy. Historically, the automotive sector has contributed between 3% to 3.5% of the U.S. GDP, a substantial slice of the economic pie. Deloitte’s research shows that as of 2020, the industry accounted for nearly 7% of manufacturing value-added in the U.S. Moreover, the automotive sector plays a vital role in employment, providing 9.7 million jobs or about 5% of U.S. private-sector employment, according to data from the Alliance for Automotive Innovation.
As the strike looms closer, economists and analysts are tallying the potential costs. The Anderson Economic Group estimates that a ten-day strike across all three automakers could amount to more than $5 billion in losses, affecting manufacturers, workers, suppliers, and dealers. To break it down further, a week-long strike at Ford could slice off $550 million from earnings, while GM and Stellantis could face reductions of $480 million and $400 million in profits, respectively, as projected by Deutsche Bank Research analysts.
The shadow of past strikes still looms large. GM’s $3.6 billion pre-tax loss in 2019, during the 42-day strike, serves as a poignant reminder of the immense financial toll these labor disputes can inflict. The workers themselves also bore a substantial burden, losing nearly $1 billion in wages during that prolonged strike.
