Detroit is so dead! First of all, by 2028 workers at the Big Three will be making almost $85/hr (w benefits) while Toyota and Tesla pay $45-50. How do you compete with that?
Don't worry it gets better. While Tesla has perfected the production of EV cars and Toyota has carved out its massive niche in hybrid (stand-alone and plug-in) Detroit can do neither very well. Their EV divisions put out 2nd rate products and are losing big money on every vehicle coming off the assembly line.
So UAW workers need not worry about the future. They don't have one. Their strike is a nail in their employer's coffin and they'll soon be looking for a new job once they finish with the carcass.
Detroit Is Paying Up to End the UAW Strike. Now Carmakers Will Live With the Costs.
Higher labor costs to hit as companies manage old, new challenges
By Mike Colias, WSJ
Updated Oct. 30, 2023 5:58 pm ET
The United Auto Workers campaign against Detroit’s three automakers can be described as one thing for the union: a win.
The six-week strike ended Monday after General Motorsreached a tentative labor deal with the UAW that followed similar pacts with Ford Motorand Chrysler parent Stellantis.
That closure is a positive for the carmakers. But it portends difficult times ahead for the Detroit Three with the new pacts expected to push the companies’ labor costs higher than initially expected when talks began.
“We wholeheartedly believe that our strike squeezed every last dime out of General Motors,” UAW President Shawn Fain said in a video posted Monday.
Ford executives are already talking about the need to offset the higher expenses in this latest deal. The automaker has said the UAW contract would add $850 to $900 per vehicle in additional costs.
“We have work to do,” Ford Chief Financial Officer John Lawler said last week. “We have to identify efficiencies. We have to increase productivity. It is a record contract.”
The tentative agreements, to be voted on in the coming weeks, include a 25% general wage increase over four years, which with cost-of-living increases would boost the top pay for production workers to about $42 an hour.
By the end of the contract’s term in 2028, most of the Detroit companies’ unionized workers would make in the mid-$80,000s annually, before overtime pay.
The return of cost-of-living adjustments—inflationary protection that gets baked into the hourly wage—was a nonstarter for the companies when bargaining began. The UAW gave it up as a concession in 2009 as GM and Chrysler stumbled toward bankruptcy, but union bargainers got it back into these contracts.
The UAW scored some other major wins, as well, securing the right to strike over plant closures, higher pay for temporary employees and a shorter, three-year time period in which it takes a production worker to reach the maximum wage.
In one of the union’s most notable victories, it secured the reopening of a 1,350-worker factory in Illinois that Stellantis had idled earlier this year. An adjoining battery facility will also be added to the site, the union said.
Auto executives knew heading into talks over the summer that they would need to open their wallets wider than they had in a long time. A tight labor market, high inflation, a run of record profits postpandemic and a revitalized national labor movement had the UAW primed for major contract wins.
Union leaders leaned into that momentum with a hard-charging approach to negotiations and the strike, galvanizing rank-and-file workers who were unhappy with the relatively small contract gains over the past two decades.
On Sunday night, Fain called the latest agreements a “turning point” for the union and emphasized that its next stop after Detroit will be trying to organize workers at automakers, such as Tesla, Toyota and Volkswagen, whose U.S. factories aren’t unionized.
“When we return to the bargaining table in 2028, it won’t just be with the Big Three, but with the Big Five or Big Six,” Fain said.
The tentative deals struck in recent days would be the richest contracts since at least the 1960s, the union said. The wage increases alone over four years total more than workers got in the past 22 years.
The United Auto Workers union said it reached a tentative deal with General Motors on Monday, more than six weeks after workers went on strike. The company is the last of the three Detroit automakers to reach a new labor deal. Photo: James Breeden/Reuters
GM Chief Executive Mary Barra said its agreement with UAW allows it to continue investing in its future and provide good U.S. jobs. “We are looking forward to having everyone back to work across all of our operations,” Barra said.
A stock-market slide for GM and Ford has punctuated the uneasiness in Detroit. Ford’s shares closed below $10 each for the first time since January 2021, while GM’s stock price hit its lowest mark in nearly seven years, outside of a deep decline after the pandemic hit in 2020.
There were other factors that spooked investors beyond the labor uncertainty. Ford badly missed third-quarter earnings expectations, in part because of nagging quality problems. GM’s driverless-car company, Cruise, pulled all of its robot taxis off the road because of regulators’ safety concerns. And both companies pulled back on EV-investment plans that investors had cheered.
The compounding pieces of bad news over the past week served as vivid reminders that the Detroit companies face challenges to their core car-making business—such as higher labor costs and pricing pressure—as they try to pull off the long-term EV transition.
For the past five years, GM and Ford executives have outlined their vision for a rapid shift to electric, digital cars that can be updated similar to an iPhone, and sometimes even take over driving duties. Unlocking new features, they have said, should lead to profitability that someday will surpass the 8%-10% operating margins they typically generate today.
GM told investors last week to forget about the company’s self-imposed deadlines for hitting EV-production targets over the next year, including a goal of making 400,000 EVs in North America over a two-year stretch ending in mid-2024. Market demand isn’t as strong as executives expected, and they want time to re-engineer their EV tech to lower costs.
Ford said the new contract with the UAW union would add $850 to $900 in expenses per vehicle. On Thursday, Ford said it would delay $12 billion in capital spending on battery plants and other EV projects, saying it doesn’t want to get ahead of the market.
Those moves will conserve capital spending on a technology that—for the foreseeable future—is a money loser. The companies say they have plans to get to profitability. But for now, the high cost of batteries, the expenses related to bringing key EV components in-house and the need to scale from very low volumes are a money suck.
The companies aren’t abandoning their electric-transition plans, nor can they afford to. Even if U.S. consumers are fickle, regulators from Washington, D.C., to Germany and Beijing are demanding carbon-emissions cuts from vehicle fleets, analysts say.
Tesla continues to expand and is more profitable than the Detroit companies, even though waning demand in the U.S. and China has prompted it to cut prices. Meanwhile, increasingly sophisticated Chinese automakers are growing profits, gobbling up market share and expanding fast into Europe.
Clouds are gathering on the traditional car business. The threat of recession and sharply higher interest rates normally chill car sales, although consumer demand so far has remained strong. Analysts predict an erosion of the strong pricing that has fueled carmaker profits, as they expect the willingness of car shoppers to spend up on models and features will wane.
Samantha McLemore, founder of Baltimore-based Patient Capital Management, which owned about 1.6 million shares of GM as of June 30, said she has stuck with the company, liking its record of healthy profits and the long-term prospects of the EV and Cruise businesses.
“What we really like is that the expectations are so low,” McLemore said.
Write to Mike Colias at mike.colias@wsj.com