Jim Farley, CEO, Ford, left, and Mary Barra, CEO, General Motors
Reuters; General Motors
DETROIT — Ready for a tightrope walk?
General Motors and Ford Motor report third-quarter earnings and future guidance this week amid ongoing strikes and contract negotiations with the United Auto Staff union. And it is a difficult balance.
If the automakers are bullish and exceed Wall Street’s expectations, it could fuel the union’s principal argument that the businesses can afford more concessions amid healthy profits — potentially prolonging the work stoppages and contentious talks.
But when the businesses, which can likely include many caveats in any future comments, are too bearish on guidance or the impact of UAW efforts, they risk scaring Wall Street and denting their already discounted stock prices.
GM is anticipated to report third-quarter earnings of $1.88 per share before the bell Tuesday, while Ford is estimated to report earnings of 45 cents per share after markets close Thursday, in line with average estimates compiled by LSEG, formerly known as Refinitiv.
While investors will certainly note the third-quarter results, the actual watcher is anticipated to be the consequences of the UAW strike and negotiations on near-term earnings and longer-term plans of Ford and GM, as well as automaker Stellantis, which the union can be striking.
The union will likely be watching, too.
Members of the United Auto Staff, or UAW, Local 230 and their supporters walk the picket line in front of the Chrysler Corporate Parts Division in Ontario, California, on Sept. 26, 2023.
Patrick T. Fallon | AFP | Getty Images
The UAW has consistently used earnings reports and commentary from executives, including GM CEO Mary Barra and Ford CEO Jim Farley, to advertise its efforts and collective bargaining.
“Once you’re in bargaining you need to use each piece of reports that is in your favor and bring it up and bring it to the general public and to the table,” said Art Wheaton, a labor professor on the Employee Institute at Cornell University. “If GM, Ford and Stellantis are still very profitable for the third quarter, [UAW’s] going to assert that, ‘They’re being too low-cost in bargaining, and they need to give us more.'”
The union on Friday said there was “more to be won” despite record contracts from the automakers. It declined, nevertheless, to expand work stoppages.
Still, its targeted strikes against the three major automakers, which began Sept. 15, are expected to have more impact throughout the fourth quarter than the prior three months. The UAW has slowly been expanding the work stoppages to incorporate additional assembly plants and distribution centers.
GM has said the work stoppage cost it roughly $200 million in lost production in September. Ford and Stellantis, which reports its quarterly results on Oct. 31, haven’t disclosed their estimates of the impact of the strikes.
UAW impact
JPMorgan estimates strike costs amounted to $145 million at Ford and $191 million at GM when it comes to earnings before interest and taxes throughout the third quarter.
Those losses are expected to have ballooned within the fourth quarter to $517 million for Ford — after the union initiated a work stoppage at its most profitable U.S. truck plant in Kentucky — and $507 million for GM.
The Kentucky plant — liable for $25 billion in revenue annually — was by far probably the most crucial strike initiated by the union. It produces F-Series Super Duty pickup trucks as well as Ford Expedition and Lincoln Navigator SUVs.
While many analysts proceed to view the UAW strike as a short-term problem, some are acknowledging that the hefty costs of an eventual concessionary deal could affect automakers’ electric vehicle plans and long-term competitiveness compared with other, non-union, automakers.
United Auto Staff President Shawn Fain during an internet broadcast updating union members on negotiations with the Detroit automakers on Oct. 6, 2023.
Screenshot
Wolfe Research analyst Rod Lache said Monday that labor costs for the Detroit automakers, based on recent proposals, are expected to extend to $3,000 to $4,000 per vehicle, compared with competitors’ costs of $2,500 to $3,000.
“This might compound other challenges that the OEMs [original equipment manufacturers] face (e.g. competitiveness in batteries, distribution, design). And we also worry that the OEMs should still not fully appreciate the long-term risks related to UAW’s latest tack — including bargaining in public, social media, and populism,” Lache said in an investor note. “The Automakers seem like struggling to regulate to this reality.”
Probably the most recent offers from GM and Ford have included 23% wage increases over the lifetime of the deal, reinstatement of cost-of-living adjustments, additional vacation days and other enhancements compared with the 2019 contracts.
EVs
The negotiations have also had an impact on electric vehicles, which were already selling more slowly than expected amid inflation, high rates of interest and lack of infrastructure.
Ford last month said it was pausing construction of a latest $3.5 billion battery plant in Michigan until the corporate is “confident” in its ability to competitively run the plant amid the UAW talks.
And GM this week said it could delay production of all-electric trucks at a Michigan plant by a minimum of a yr to “higher manage capital investments” and implement improvements in an effort to make the brand new EVs more profitable.
A GM spokesman said the change in plans was not connected to the corporate’s contract negotiations with the UAW. Nonetheless, the contentious talks do involve EVs, and current contract proposals by the corporate are expected to be costlier than those in years past.
Wall Street will likely be waiting for updates on EV progress and demand.
Even Tesla CEO Elon Musk, whose company leads EV sales, was cautious regarding demand for electric vehicles when Tesla reported earnings last week.
“I’m apprehensive in regards to the high rate of interest environment we’re in,” Musk said. “If rates of interest remain high or in the event that they go even higher, it’s that much harder for people to purchase the automobile.”
— CNBC’s Michael Bloom contributed to this report.