If the mood in Michigan—and parts beyond—seems a bit tense these days, there’s a good reason. The United Auto Workers (UAW) membership has been gearing up for a strike for the last few weeks now. With the latest UAW contract set to expire September 14, and the plaudits and platitudes of Labor Day likely ringing in their ears, the UAW is ready to take up picket signs and shut down production at the Big Three automakers. That includes Ford (NYSE:F), General Motors (NYSE:GM), and Stellantis (NYSE:STLA). But what does this mean for those auto companies and for you personally? The short answer – higher costs.
A Strike Could Lead to Huge Losses
Immediately, there’s a big problem for the Big Three if their labor base goes on strike. The Anderson Economic Group (no relation) took a look at the problem and the numbers are catastrophic. The UAW maintains about 150,000 total laborers across all three automakers. With all of them out marching, waving signs, and not building cars, that will cost the trio collectively over $5 billion after 10 days. From there, Deutsche Bank’s projections noted that each automaker would subsequently lose $400 million to $500 million per week.
On the surface, that might not sound like much. After all, Ford’s revenue was $44.95 billion this quarter alone. However, a strike that runs for even a month, using Deutsche Bank’s $500 million per week measure, would cost Ford $2 billion. That’s about 5% of its quarterly take, and that’s no small loss. It also assumes the strike stops after one month.
Auto Market Conditions are Shifting
Here’s where things start to get sticky, not only for Ford but for GM and Stellantis, too. The last three years, so far, have been marked by two major demand markets. The first was where everyone wanted a car but couldn’t get one because supply chain problems made buying a car virtually impossible. The prices of used cars soared along with those of new cars, aided and abetted by inflationary pressures. Then, we got into a market where the supply was starting to normalize right at about the time demand was beginning to peel away.
Now, we’re poised to go into a third phase where inventory levels drop, thanks to the strike, right about the same time demand slips because no one wants to spend much money. We’ve already seen how the consumer has been taking it on the chin in this market. People aren’t upgrading; they’re downgrading, and in pretty rapid fashion. So, their odds of spending big money on new cars any time soon aren’t looking good. And with the Big Three’s production at risk, that means further crimping in supply. Price cuts will be in short supply right when they may be needed most to spur demand.
This will leave the Big Three with bad choices all around. They need inventory to sell. But they need less inventory because no one’s buying anyway. So, do they accede to the UAW’s many demands to get cars back on dealer lots everywhere? Or do they tell the union to go hang because no one’s buying a car anyway? Only time will tell.
Final Thoughts: There’s a Lot at Stake with This Strike
There’s a lot at stake with this strike. Not only is it costly if the Big Three can’t get the UAW back to work, but it’s also costly if it does. Going along with the UAW’s demands might mean an extra $80 billion in labor costs, according to Bloomberg. That’s half of Ford’s revenue, though certainly, Ford wouldn’t shoulder the whole cost.
![](https://blog.tipranks.com/wp-content/uploads/2023/09/Screenshot-2023-09-04-at-08-34-45-Stock-Comparison-Tool-Compare-Stocks-Performance-TipRanks-TipRanks.com_.png)
Still, with labor costs set to more than double by some estimates—from $64 an hour to over $150—it means a big hit. As a result, the price of a completed car would likely soar as Ford et al pass on the costs to consumers. And with the consumer crippled as it is, that’s not a position that Ford, GM, or Stellantis—or anyone else—wants to be in.