The labor contract between the United Auto Workers and the Detroit-Three automakers expired at midnight on Thursday. A deal isn\u2019t done and the union will start by striking at three facilities, one at each automaker. <\/p>\n
\u201cFor the first time in our history, we will strike all three of the Big Three at once,\u201d said UAW president Shawn Fain. \u201cWe will call on select facilities, locals, or units to stand up and go on strike.\u201d <\/p>\n
\n
Investors will need to figure out what to do with car stocks. A lengthy work stoppage might also impact other sectors and overall economic growth in the U.S. during the final parts of 2023. Navigating it all, however, doesn\u2019t have to be overwhelming. There will also be some stocks to buy in the aftermath of whatever happens. <\/p>\n
Where Is the Strike Happening <\/h2>\n
The UAW is starting to strike at
\n General Motors
\n \u2018 Wentzville Assembly Plant,
\n Stellantis
\n \u2018 Toledo Assembly Complex, and Ford\u2019s Michigan Assembly Plant. <\/p>\n
Wentzvill builds mid-size trucks and full-size vans including the GMC Canyon and Chevy Colorado. Toledo builds Jeeps including the Wrangler. Michigan Assembly builds Ford Ranger and Ford Bronco. <\/p>\n
\u201cThe initial scope is more limited than expected,\u201d wrote Baird analyst Luke Junk in a Thursday report, adding it had appeared the UAW would likely target engine and transmission plants that could have effectively shut down all of North American operations. \u201cThe situation could worsen from here.\u201d <\/p>\n
Keep Things In Perspective <\/h2>\n
Strikes are scary. <\/p>\n
New UAW president Fain has a flare for the dramatic, literally trashing proposals from
\n Ford Motor
\n (F),
\n General Motors
\n (GM), and Chrysler parent Stellantis (STLA). It\u2019s a little unnerving for investors. <\/p>\n
What\u2019s more, a strike will have wide-ranging impacts. Big numbers, mostly in the billions, will get thrown around daily but any strike will eventually get resolved and most of the economic activity, such as producing and buying new cars, will shift to different months on the calendar. <\/p>\n
Cars are important for the economy, but consider the labor deal between
\n United Parcel Service
\n (UPS) and the Teamsters union impacted some 340,000 workers. Less than 150,000 workers are impacted by current negotiations. There are more than 160 million workers in the U.S. <\/p>\n
Numbers, Numbers, Numbers <\/h2>\n
The number of total workers directly impacted by the strike is small. The total impact on the U.S. economy isn\u2019t that large either. <\/p>\n
The Anderson Economic Group estimated the cost to the U.S. economy of a UAW strike was about $500 million a day. A 10-day strike amounts to about 0.02% of total annual American economic output. <\/p>\n
Anderson gives auto manufacturing an economic multiplier of about two times, which means that for every dollar not spent by workers because of the strike, it will have a $2 impact on the economy from lost wages, production, dealers sales, and buying a latte at
\n Starbucks
\n (SBUX). Investors can use that number and multiplier to keep track of impacts. <\/p>\n
As for the car companies, GM, Ford, and Stellantis have about 40% share of the U.S. market for cars and light trucks. North American production output for the trio amounts to roughly $1 billion a day, excluding Sundays. UBS analyst Joseph Spak pointed out in a report this week that auto parts companies lost about 0.3% of full-year sales every 10 days of the strike. <\/p>\n
That\u2019s what\u2019s at risk for the companies. For consumers, lower auto production means a lower supply of new vehicles and higher prices for new and used cars, as well as higher prices for auto insurance. Insurance rates are tied to the value of vehicles. <\/p>\n
Insurers in the Crosshairs<\/h2>\n
J.P. Morgan analyst Jimmy Bhullar pointed out in a September report that higher auto prices are headwinds for insurers such as
\n Allstate
\n (ALL) and
\n Progressive
\n (PGR). The problem is insurance rates lag the rise in car prices, pressuring profit margins. Bhullar likes both stocks, raking them Buy, partly because profit margins are rebounding after the pandemic restricted auto production and drove up car prices. The rebound, however, will be delayed if there is a lengthy strike. Investors might want to just wait to see what happens before jumping into auto insurer shares. <\/p>\n
Why Auto Part Stocks Can Shine<\/h2>\n
Shares of auto parts producers, which have also been weak in recent weeks could shine.
\n Aptiv
\n (APTV),
\n BorgWarner
\n (BWA), and
\n Mobileye
\n (MBLY) shares are down more than 10% on average over the past couple of months.<\/p>\n
UBS analyst Joseph Spak has Buy ratings on all three stocks. That\u2019s partly because of the recent decline and partly because all three have above-average growth on the horizon because of business tied to EVs and self-driving cars.<\/p>\n
Why Ford and GM Could Bounce Back<\/h2>\n
GM, Ford, and Stellantis shares are down about 16% from their 52-week highs on average with most of that drop coming in the last two months while labor rhetoric heated up. The
\n S&P 500
\n is flat over the past two months. <\/p>\n
Now the strike is here and, eventually, it will be resolved. Many on Wall Street, including BofA Securities analyst John Murphy and Morgan Stanley analyst Adam Jonas point out that automaker stocks tend to rebound after a deal is done. That sounds like an opportunity. <\/p>\n
It also sounds like a reason to avoid
\n Toyota Motor
\n (TM) shares for a little while. Shares are up about 18% over the past two months. Toyota might be a winner in a strike, but it\u2019s a short-term winner. <\/p>\n
Cars Stocks for the Long Run<\/h2>\n
A bad deal, however, might continue to weigh on Ford, GM, and Stellantis shares. Wedbush analyst Dan Ives tells Barron\u2019s<\/em> that annual wage increases of 5% could put GM, Ford, and Stellantis at a competitive disadvantage versus nonunion players including
\n Rivian Automotive
\n (RIVN) and
\n Tesla
\n (TSLA). <\/p>\nAuto workers and companies will both likely declare victory when a deal is done. Figuring out exactly how fast wages are rising is difficult. Auto deals tend to include wage increases and lump sum payments. Anything that implies a 4% annual increase is fine. <\/p>\n
Inflation has averaged close to 4% over the life of the existing labor contract compared with 2% over the life of the prior contract. Production wages for the UAW in the 2019 contract were in the range of $32 a share, according to the Federal Reserve. Average hourly earnings in the U.S. are about $32.50, according to the Bureau of Labor Statistics. <\/p>\n
Wages need to rise, but how much they rise could determine whether GM, Ford, and others will be able to effectively fight Tesla for an EV future. <\/p>\n
Write to Al Root at allen.root@dowjones.com<\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"The labor contract between the United Auto Workers and the Detroit-Three automakers expired at midnight on Thursday. A deal isn\u2019t done and the union will start by striking at three facilities, one at each automaker. \u201cFor the first time in our history, we will strike all three of the Big Three at once,\u201d said UAW […]<\/p>\n","protected":false},"author":1,"featured_media":61206,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-61205","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\n
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