Auto Strikes Over, Market Senses Bigger Problems Ahead

(Bloomberg Opinion) -- As much as Shawn Fain has been the scourge of the Big Three automakers, he was also thereby supposed to offer perverse grounds for optimism. The resolution of the United Auto Workers’ strikes was expected to result in a relief rally for Ford Motor Co., General Motors Co. and Stellantis NV. So much for that.

Ford, which announced a deal with the union last Wednesday, plunged 12% Friday to its lowest level since early 2021. Stellantis followed with its own tentative agreement this weekend and GM did on Monday morning. Investors shrugged.

Maybe the companies gave away too much to the UAW; if ratified, these are the most lucrative contracts won in decades. Yet Ford’s estimated impact on margins of about 60-70 basis points isn’t too different from what analysts had expected and avoided some of the most far-reaching demands on pensions and workweek. Fain, the UAW’s president, wasn’t shy about his ambitions and a big raise in the mid-20% range had been baked in by the market already.

Perhaps of more consequence, at least in terms of signaling, was Fain’s triumphal take on what the resolution of the strikes portended, which could be summed up as ‘no resolution’. Fain called these deals a “turning point” for the UAW that would enable it to expand so that, by the time it negotiates again in 2028, it wouldn’t be just with the Big Three, “but with the Big Five or Big Six.” The UAW has to get away from targeting just Detroit (see this) and, in a way, it would help GM, Ford and Stellantis if competitors in the US had to sign similar contracts. In the meantime, though, the UAW is their problem and the righteous anger of its leadership has seemingly been reenergized rather than assuaged. Fain is calling on other unions to align their contract expirations with the UAW’s, as if preparing for some future general strike.

This might be easier to bear — 2028 is a ways away — were it not for several other setbacks. GM hosted an earnings call about a week ago that was a masterclass in mixed messaging. Its results were actually good, but it also withdrew full-year guidance due to the impact of strikes. Chief Executive Mary Barra said GM’s “commitment to an all EV future is as strong as ever” while also slowing the pace of investment and delaying the launch of several electric models. It didn’t help that, the same day, the UAW expanded its strikes against GM plants and then California suspended the company’s Cruise autonomous driving business from operating driverless vehicles in the state, accusing it of withholding information about a recent collision with a pedestrian. Barra had boasted that day about how “safety is always at the forefront” of Cruise’s efforts.

Ford, meanwhile, followed the good news on Wednesday night of a resolution with the UAW with Thursday’s absolute howler of an earnings release. The company made an operating profit of $1.7 billion from selling 736,000 traditional vehicles in its Blue division — but lost $1.3 billion selling just 36,000 EVs in its Model e division. Losing money on EVs in 2023 isn’t exactly a revelation, given Tesla Inc.’s slumping margins, but the messaging was blunt: “Many North America customers interested in buying EVs are unwilling to pay premiums for them over gas or hybrid vehicles, sharply compressing EV prices and profitability.” There was also a nasty surprise in the form of $1.2 billion of warranty costs.

If a single theme unites these disparate challenges it is the age-old difficulty of old dogs and new tricks.

The incumbent automakers are attempting to extract as much as possible, for as long as possible, from their traditional truck and SUV-dominated models while also trying to embrace the future via electrification and autonomy. In one sense, this is a strength: Whereas Tesla can only try to address a slowdown in EV demand with price cuts, which savage its margins, the Big Three can also lean into their gas-guzzlers.

But that isn’t enough so long as investors believe that mass EVs and robotaxis are inevitable, even if the timing is debatable. Detroit has the unenviable task of maximizing profits from its existing business while still showing meaningful progress on what’s next.

Yet the past week has seen Ford report losing north of $1 billion on issues with product quality, GM’s autonomous driving unit losing its license in America’s de facto capital of autonomous driving, and both companies attempting to talk up future EV prospects amid the weaknesses of the present reality, something at which Tesla’s Elon Musk is far more accomplished (and even he sounds depressed at the moment). To cap it all, they’ve reenacted that most venerable of Detroit scenes: caving to the UAW. The vaunted relief rally has been overwhelmed by the shock of the old.

More From Bloomberg Opinion:

• Musk's Cybertrucks Aren't Coming to Tesla's Rescue: Liam Denning
• UAW Strike Exposes Biden’s Green-Energy Conundrum: Editorial
• It's Too Soon for Unions to Pop the Champagne: Stephen Mihm 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited the Wall Street Journal’s Heard on the Street column and wrote the Financial Times’s Lex column.

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