Wells Fargo remains underweight on Ford (NYSE:F) and General Motors (NYSE:GM) as they continue to see significant risks for the OEMs heading into the expiring UAW contract, which expires on September 14th.
“We expect a D3-wide strategic or "bottleneck" strike vs. national strike. This would shut down most D3 production without drawing on the strike fund,” wrote the analysts.
“The strike will be temporary, but the labor concessions are permanent,” they added.
Wells Fargo's primary scenario anticipates a strike lasting approximately 45 days involving all three major Detroit automakers. The analysts have doubts about the UAW leadership's ability to fulfill their ambitious commitments and believe that a long strike is likely needed to convince workers that a better deal is not available.
There are reports indicating more favorable progress in Ford negotiations, but GM and Stellantis (NYSE:STLA) are maintaining a tough stance, with the UAW having filed an unfair labor practice charge against them with the National Labor Relations Board (NLRB).
Ford released its UAW proposal earlier this week. Langan estimates the offer suggests an annual labor cost increase in the range of $0.3-0.5 billion, which falls short of the UAW's wage demand, which stands at $1.9-2.7B. Unlike GM and STLA, Ford's negotiations with the UAW are reportedly making progress, with sub-committee discussions wrapping up. There is a growing optimistic scenario where Ford could reach an agreement within two weeks after the expiration, but it's expected that GM and STLA will require more time for their negotiations.
The strike will be temporary, but the labor concessions are permanent. If the Detroit 3 were to agree to an initial 15% wage increase, along with a fixed annual wage increase of 3% and a COLA, Wells Fargo estimates that this would result in a cost increase ranging from $1.2B to $1.9B.
This projection slightly exceeds the average impact of the proposals from GM and Ford, as well as the wage demands put forth by the UAW. The rise in labor costs due to these concessions adds to the challenges that the OEMs face.
In the long term, the contract is likely to lead to the three automakers increasing their sourcing from lower-cost regions like Mexico and Canada, as well as ramping up their investment in automation to manage costs.
Shares of F, GM and STLA are up 1.21%, 0.76% and 0.58% respectively in mid-day trading on Friday.