Negotiations between the UAW and the Detroit OEMs are not progressing as expected. Shawn Fain, the union’s President, intends to make it clear that the UAW now has its ducks in a row, and is ready to fight for pay raise and benefits. Shawn Fain will stand firm on his positions, and has stated that he is not afraid to go for a strike simultaneously with all 3 Detroit automakers, if necessary. In the meantime, OEMs are caught between high materials, labor, and energy costs on one hand, and accelerated investments for electrification on the other hand. These conditions make it particularly difficult for OEMs to accept the UAW’s demands or even find common grounds before September 14th, the expiration of the current contracts. UAW members have already authorized the strike if negotiations break down.
Shawn Fain entered the 2023 bargaining round with a firm stance. UAW demands are very consequential for this year’s negotiations. The union is asking to drop off the tiered-wage system, changing OEMs’ utilization of temporary workers, an increase in salary based on the Cost of Living Allowance (COLA), extended pension plans regarding retirement, vacation time (possibly asking for 32-hour work weeks), and no plant closings. These demands are difficult for the automakers to meet. However, the tenacity of these requests suggests the UAW will not leave the bargaining table empty handed for the next 4-year contract. As the Detroit 3 OEMs invest massively towards their electrification plans, the current situation is not offering the right perspective for automakers to consent to such demands.
The union is well aware of the consequences of electrification and the recent slowdown in vehicle demand is leading the OEMs to protect their financial results. Past studies have revealed that electrification could cost up to 35,000 of the 150,000 union members employed by Detroit 3 in case of a complete shift of the industry towards electric powertrains. This would be a significant loss of importance and power for the union. It explains the recent union communication denouncing the EPA proposal that would accelerate EV adoption between 2027 and 2032. Therefore, the timing favors strong negotiations as the UAW leaders don’t seem to have been moved by the profit sharing that all 3 OEMs have paid for the past year’s results (Ford paid $9,176, GM $12,750, and Stellantis $14,760.)
The union is playing for high stakes, and the possibility of a strike has been agreed upon by the union members if discussions break down by September 14. Strike assistance has been increased by $100 to $500 per week (starting on the 8th day of the strike). This is significant, but it still means a loss of salary comprised between 25% and 60% based on the worker’s seniority. The strike funds allocated by the UAW amounts to $825 million, which ultimately means the union could stand up to 12 weeks of strike, assuming it would be called simultaneously by all 3 automakers. A month’s strike could cost each manufacturer over $4 billion in revenue and would inevitably impact the US GDP.
The OEMs’ Perspective
The more favorable context from the 2019 UAW negotiations didn’t prevent a 40-day strike at 30 of the Detroit 3’s production sites. This time, automakers are more focused on protecting their margins. The hike in material and labor costs, and the high interest rates (cost of capital) are pointing in the direction of a temporary slowdown. In the meantime, electrification comes with a substantial price tag, accounting for a majority of R&D and manufacturing investments over the next 5 years for most OEMs. Ford recently explained that electrification had cost it part of its profits. This is a situation that the Detroit 3 are facing at different levels, but with the same problem of lengthy return on investments.
Recently, automakers have sent a strong signal on the necessity to cut costs through voluntary buyout plans for salaried workers. About 5,000 employees have left GM, 3,000 have left Ford and 2,500 at Stellantis. At Stellantis, another plan outlined cutting 3,500 hourly worker jobs and up to 31,000 employees. This move was rebuffed by the UAW. Electrification implies cost reduction to cope with higher investments and a mid to long-term return on its investments. As a result of the IRA (Inflation Reduction Act) plan, jobs will be preserved in the USA, but their nature will change. It considers job conversion shifting from vehicle drivetrain and component assembly to battery and electric powertrain assembly. Many of these jobs will land in new factories, sometimes joint ventures between OEMs and battery or component manufacturers, and potentially, in non-unionized plants.
Automakers have not entered the bargain empty handed. Stellantis has suspended the Belvidere plant operations with no new model allocations. GM and Ford product plans show shortened lifecycles for several ICE models, leading to early production volume cuts. New models for factory allocations could be part of the bargain. Faced with the risk of a strike, OEMs could make it bearable for dealers as the recent drop in demand have helped increase dealer inventories. Dealers may be able to handle the effects of a strike for up to 4 or 5 weeks and still be selling cars. Inventories average about 60 days of sales (over 90 for BEVs). A strike is not ideal for carmakers, but as negotiations progress, the industry is getting prepared.
The Biden administration remains neutral. Recently, President Biden met with Shawn Fain, who warned of the risk of a strike. Neutrality is hard to maintain as the current situation is partially a consequence of the government’s electrification policy. While the CO2 and emissions targets set up thru 2026 are achievable, new emissions reduction targets proposed by the EPA would increase the need to adopt BEVs by 66% between now and 2032. Both OEMs and the UAW have rejected this proposal.
The government may hold a major key to the bargain as it could ask the EPA to return to the drawing board. This would allow automakers to slow down conversion plans and preserve unionized jobs for the duration of the next contract. But there is a political risk as such move could lead to losing the support of those backing a more aggressive environmental agenda as President Biden enters the campaign trail for next year’s elections. On the other hand, softening future standards would win the support from unionized employees. They are particularly well represented in swing states (Michigan, Ohio and Wisconsin.) However, a slower adoption of EVs would mean a longer ramp-up for the new battery and EV factories, particularly those in traditionally Republican states.
The Urge to Cool Down
The bargain is making progress, but not sufficiently to exclude the risks of a strike. The industry is getting ready for September 15th. A simultaneous strike at the Detroit 3 OEMs for a 3-to-4-week period is highly likely at this point. The question becomes what this would mean for the tier suppliers, dealers, and other market participants relying on assembly line cadencing, components deliveries, and replacement parts. Is it a time for struggle to maintain revenues, or does it mean an opportunity to retool factories and revisit the supply chain?
Ducker Carlisle’s decades of automotive consulting experience and comprehensive expertise in auto and light truck manufacturing, electrification, aftersales, and parts benchmarking help automotive clients secure an advantage in a shifting global market. Learn more here.
Article Prepared By:
Leonard Ling, Senior Analyst – Automotive Knowledge Manager
Bertrand Rakoto, Director – Global Automotive Practice Leader