Strike or Not? Tonight's the night. Midnight, specifically.
The United Auto Workers is simultaneously negotiating separate national contracts with the big three US automakers: Ford Motor (F) , General Motors (GM) and Stellantis (STLA) .
Stellantis is not US based, as the firm is headquartered in the Netherlands, but does own the Chrysler, Dodge and Jeep US brands as well as the European-based brands Fiat, Alfa Romeo and Maserati.
On Wednesday, Ford Motor CEO Jim Farley, whom your author is a fan of, rebuffed comments made by UAW President Shawn Fain that the company was not taking negotiations seriously. Fraley tried to clear the air, and stated that Ford Motor had received "no genuine counteroffer" on any of the firm's four proposals already made. Fain also apparently skipped a meeting on Tuesday that Ford Motor Chair Bill Ford had expected Fain to attend.
The UAW has been demanding 40% hourly pay increases, a reduced 32 hour workweek, a move back toward traditional pension plans, the elimination of compensation tiers, and a restoration of cost of living adjustments.
Ford's fourth and most recent proposal includes 20% hourly wage increases, a cost of living adjustment plan, re-worked profit sharing, 90 days to progress from temporary or supplemental hires to become regular employees, increased vacation time and two weeks parental leave. Fain, for that matter, says that the big three have all rejected the union's retiree and healthcare proposals.
The Letter
Shawn Fain took to Meta Platform's (META) Facebook using the "live" function. Fain said that he believed that strikes against the big three were "likely" and "We're preparing to strike these companies in a way they've never seen before."
Apparently, Ford's Jim Farley wrote a letter in response to Fain's Facebook appearance, outlining what Ford is offering. Some of these proposed benefits are way beyond anything most American workers can even dream of.
On the list are the significant wage increases, cost of living adjustments, eliminated wage tiers, increased contributions to retirement plans, healthcare benefits that would rank in the top 1% of all employer sponsored medical plans, up to five weeks vacation time with 17 paid holidays annually. Those aren't misprints. Imagine 17 paid holidays? Or five weeks of vacation? Or a top 1% healthcare plan?
I'm not anti-union. Not in the least. I believe unions play a necessary role in balancing the labor market playing field. There are union members in my immediate family. That said, in almost four decades on Wall Street, I have never heard of anyone even being offered benefits like these. Remember, these are jobs that don't require you to check in several times a day or virtually attend meetings when you are off. These folks are actually off when they're off.
Disaster or Opportunity?
Last month, UAW membership voted overwhelmingly to grant union leadership the authority to call strikes against these three firms. The risk of a walkout obviously creates uncertainty for investors in these names. There are 146K workers at the big three, who are also members of the UAW. Of those, 57K workers are employed by Ford Motor. Fain is trying to take advantage of what has been the tightest labor market in memory and recent victories by unions against management in other industries.
Interestingly, President Biden, in a Labor Day speech, said he was not worried about a strike and stated, "I don't think it's going to happen." In response, Fain said he was shocked by the president's comments, implying that the president had communicated with him on the issue.
If there is a strike, analysts are estimating a negative impact that could approach $400M to $500M a piece for the three firms. Wells Fargo estimates that wage increases, cost of living adjustments and ending the tiered wage system could increase labor costs at the three US automakers by $2.2B to $3.2B (per annum?). A strike would also push EV (electric vehicle) production planned for late this year well out into next year.
I am not going to buy any of these names today (Thursday) or tonight assuming that no agreement is made. I do think that once a strike is called that these stocks will likely suffer a negative market reaction.
This looks sloppy because I had to draw the less well known Fibonacci levels in for myself. This model only has the standard 38.2%, 50%, and 61.8% Fibonaccis, even though 50% retracements are not true Fibonaccis. I had to draw the 23.6% and 78.6% retracement lines on the chart.
Readers will see that Ford Motor found support close to that 78.6% Fib level in August. I do not plan to buy Ford unless there is a strike and the reaction to that strike is a share price that not only pierces that level to the downside, but then takes out the lows of December 2022.
This would be a trade, not an investment. And while bringing back their labor force will permit these firms to continue to manufacture and deliver their products. However, these firms that are not really in the best financial shape to begin with, will have been substantially weakened through what they will have provided to their employees.
These deals will hurt shareholders as well as customers. I am interested in buying Ford Motor on strike-inspired weakness and then dumping the position almost as soon as an agreement is made to end the strike. In my opinion, that would be the best day for these stocks going forward. After that, reality will hit.
