{"id":79290,"date":"2023-11-01T07:52:17","date_gmt":"2023-11-01T11:52:17","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/the-uaw-strike-is-almost-over-barrons-assigns-grades-to-the-key-players\/"},"modified":"2023-11-01T07:52:21","modified_gmt":"2023-11-01T11:52:21","slug":"the-uaw-strike-is-almost-over-barrons-assigns-grades-to-the-key-players","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=79290","title":{"rendered":"The UAW Strike Is Almost Over. Barron’s Assigns Grades To The Key Players."},"content":{"rendered":"

Forty-five days, many late nights, and a lot of investor consternation. That\u2019s what it\u2019s taken to get new tentative labor agreements for the United Auto Workers and the Detroit-Three auto makers Ford Motor, General Motors, and Stellantis. <\/p>\n

The process isn\u2019t complete. Deals need to be ratified by the members. Still, it isn\u2019t too early to dole out grades for the participants and to look at what the deal means for investors. <\/p>\n

\n

Shawn Fain, A-<\/h2>\n

Fain took over as UAW president in March. \u201cLet\u2019s get ready to rumble!\u201d was how he started a speech shortly after taking office. \u201cWe\u2019re here to come together, to ready ourselves for the war against our one and only true enemy,\u201d he said. \u201cMultibillion-dollar corporations and employers that refuse to give our members their fair share.\u201d <\/p>\n

Fain was as good as his word. Occasionally wearing camo or a T-shirt that said \u201cEat the Rich,\u201d Fain devised a Patton-like strategy to strike all three auto makers at once and to expand the strike seemingly without provocation or warning. <\/p>\n

It worked. Wages will rise about 25% over the life of the contract, wage tiers, which were prior concessions the Union made when auto makers were losing billions, are gone and there will be electric vehicle jobs filled by UAW workers. <\/p>\n

Another positive: He had the support of his members. \u201cHe\u2019s hit the companies with some screwballs\u2026I love the idea of negotiating all at the same time,\u201d says UAW Local 862 President Todd Dunn. \u201cHe\u2019s done an excellent job.\u201d <\/p>\n

It\u2019s tough to argue with results. Still, he was docked takes for some comments about dividends. Companies have to make money and return cash to shareholders or they would be, theoretically, worthless. We also don\u2019t like some of the more extreme rhetoric such as when he said company leadership believed Union members were dumb. <\/p>\n

Despite our misgivings, his grade would jump to an A+ if he makes progress on one of his goals: Unionizing the mainly foreign auto makers operating without unions in the U.S. That would be quite a feat. <\/p>\n

Auto CEOs, B-<\/h2>\n

It would be easy to say the leaders of the auto makers\u2014GM\u2019s Mary Barra, Ford\u2019s Jim Farley, and Stellantis\u2019 Carlos Tavares\u2014deserve failing grades because they lost. That\u2019s an oversimplification. No one expected costs to stay flat. No one really expected the 2023 labor negotiation to go down without a strike either. <\/p>\n

The 2023 strike will likely end up lasting about 50 to 55 days, a little longer than the 2019 strike that impacted
\n General Motors
\n (GM). That isn\u2019t too bad considering inflation averaged close to 4% a year on average over the life of the prior labor contract while general wage increases were less than 2%. <\/p>\n

Workers were always going to ask for more. They had lost ground while profit margins at
\n Ford Motor
\n (F), GM, and
\n Stellantis
\n (STLA) improved. The Union started out asking for 40%-plus wage increases over the life of the contract, depending on how the ask was broken down. It ended up with an increase in the range of 25% plus some inflation protection. <\/p>\n

\u201cHonestly none of this was really much of a surprise,\u201d says RBC analyst Tom Narayan. \u201cThe narrative is that this was very good for the UAW, but I think this was always going to be a decent-sized concession\u2026you\u2019ve had the [auto makers with] record profits for several years.\u201d <\/p>\n

He acknowledges that nonunion operators can have a cost advantage over unionized shops, but it isn\u2019t guaranteed. What\u2019s more, he estimates that labor increases represent about a one percentage point headwind to Ford\u2019s estimated operating profit margins in coming years of about 6%. Not insignificant, but not insurmountable. <\/p>\n

For more evidence that the contract isn\u2019t existential.
\n S&P Global
\n (SPGI) upgraded Ford\u2019s debt to investment grade Tuesday. Ford\u2019s \u201cEbitda margins will exceed 8% (our previously stated target) with adequate cushion in 2024 and 2025 given strong momentum in its commercial vehicle franchise and gradual cost reduction,\u201d reads the upgrade. <\/p>\n

Ebitda is short for earnings before interest, taxes, deprecation, and amortization. S&P Global didn\u2019t change the estimate post-contract. <\/p>\n

Higher than a B- almost misses the point. The job for Barra, Farley, and Tavares isn\u2019t to end a strike or keep labor down. It is to build a winning culture and profitable gasoline and battery-powered cars. There is a lot more work to do on those fronts. <\/p>\n

William Clay Ford Jr., B+ <\/h2>\n

Bill Ford Jr. deserves some credit for putting himself out there and trying to reframe a contentious situation. \u201cThis is not Ford versus the UAW, it should be Ford and the UAW versus
\n Toyota,<\/span><\/p>\n

Honda,<\/span><\/p>\n

Tesla,<\/span>
\n and all the Chinese companies that want to enter our home market,\u201d said Ford on Oct. 16. \u201cWe need to come together to bring an end to these acrimonious talks.\u201d<\/p>\n

It might sound idealistic, but he isn\u2019t wrong. One barrier to the culture is the difference between profit-sharing and stock-based compensation. <\/p>\n

All three auto makers pay annual profit-sharing. Workers, very roughly, get $1,000 for every $1 billion in North American operating profit. It\u2019s designed to reward employees when the company is doing well. But it comes and goes year by year. Stock-based compensation does the same but creates a permanent financial asset for workers. <\/p>\n

Tesla pays stock-based compensation deep down into the organization. That advantage Tesla has that might remain no matter who wins and loses in labor talks. <\/p>\n

Auto Stocks, C-<\/h2>\n

Coming into this labor negotiation, shares of Ford, Stellantis, and GM returned about 11%, 9%, and 1% a year on average for the past five years. The
\n S&P 500
\n and
\n Dow Jones Industrial Average
\n returned about 12% and 10%, respectively. <\/p>\n

The strike, though, has been devastating for Ford and GM shares. Both are down in the range of 30% over the past three months. <\/p>\n

Wall Street expects a bounce now that investors have all the labor details. Several analysts point out that shares tend to gain back some ground after new labor deals are signed. <\/p>\n

It will take more than a bounce back to lift grades. It will take management teams convincing investors there is growth and consistent profitability down the road, and then delivering on those promises. <\/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":"

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