The ongoing United Auto Workers (UAW) strike is posing a significant threat to the financial strategies of major automakers like General Motors (GM) and Ford. Both companies had ambitious plans to invest billions in the development of new electric vehicles (EVs) while also returning capital to investors, primarily funded by their profits from traditional combustion trucks and SUVs. However, the mounting costs of the UAW strikes and the eventual financial implications of rich contract settlements are raising concerns among industry analysts.
Morgan Stanley analyst Adam Jonas has suggested that the strikes may lead to a reduction in capital spending, delayed EV targets, greater cost-sharing, and other changes to the corporate portfolio of these automakers. GM and Ford are expected to release their third-quarter results soon, with GM already signaling a $200 million hit to its third-quarter profits due to strike-related costs.
According to JP Morgan analyst Ryan Brinkman, these strikes have already cost GM and Ford more than $500 million, with Ford losing an estimated $44 million per day and GM losing $21 million per day. Ford, in particular, suffered a significant setback when UAW President Shawn Fain ordered a walkout from Ford’s highly profitable Kentucky Truck assembly plant, responsible for generating $25 billion in revenue annually, or approximately $48,000 per minute.
The tension escalated when Fain responded to a Ford executive’s claim that the company had reached its limit in terms of union contract expenditures. Fain demanded, “Go get the big checkbook. The one Ford uses when it wants to spend millions on company executives or Wall Street giveaways.” Ford had already spent $3.8 billion on dividends in the first half of the year, promising investors a substantial share of free cash flow through dividends and share buybacks.
Fain highlighted a significant increase of 1,500% in the money spent on share buybacks by the Detroit Three automakers over the past four years, arguing that they can afford substantial wage increases for UAW workers. GM, for instance, increased funding for share buybacks from $3.3 billion to $5 billion in 2022 and reported spending $869 million on share buybacks in the first half of 2023, along with $250 million in stock dividends.
Both GM and Ford have already scaled back their planned investments in EV and battery plants. GM revised its spending on EVs and battery plants this year to between $11 billion and $12 billion, down from a previous estimate of up to $13 billion, while also increasing its cost-cutting target. Ford halted a $3.5 billion battery plant in Michigan and suggested that more cuts to future product investments could follow if a “bad deal” is struck with the UAW.
The prolonged standoff with the UAW has negatively impacted GM and Ford shares, with GM trading near a 52-week low. Nevertheless, some investors remain cautiously optimistic, believing that dividends and share buybacks can continue in the short term. Tim Piechowski, a portfolio manager with ACR Alpine Capital Research, expressed confidence that investments in EVs should persist. His primary concern is the possibility of drawing down cash in the event of a full work stoppage. To hedge against such a scenario, GM has established a new $6 billion credit line.
