The United Auto Workers (UAW) strike has commenced, affecting the Detroit-Three automakers – General Motors, Ford, and Stellantis (Chrysler’s parent company).
Investors face important decisions as the strike unfolds, potentially impacting various sectors and overall U.S. economic growth for the latter part of 2023. However, this situation can be managed, and there are investment opportunities to consider once the dust settles.
The UAW strike began with walkouts at three facilities: General Motors’ Wentzville Assembly Plant, Stellantis’ Toledo Assembly Complex, and Ford’s Michigan Assembly Plant.
These strikes raise concerns among investors, as the UAW president, Shawn Fain, adopts a dramatic approach in negotiations.
Impact on the Economy:
While strikes can be unsettling, it’s essential to note that the number of workers directly affected by this strike is relatively small compared to the total U.S. workforce of over 160 million.
The estimated daily cost of a UAW strike to the U.S. economy is approximately $500 million, a fraction of the annual economic output.
Auto Industry Impact:
The Detroit automakers hold about 40% of the U.S. car and light truck market. The strike poses a risk to these companies, with around $1 billion of North American production output daily.
Auto parts companies may experience a 0.3% loss in full-year sales for every 10 days of the strike.
Consumers may face challenges due to lower auto production, leading to reduced supply, higher prices for new and used cars, and increased auto insurance costs.
Insurers like Allstate and Progressive may feel pressure on profit margins if auto prices continue to rise.
While auto manufacturers may see their stock prices drop during a strike, history shows they tend to rebound once a deal is reached. This could present a buying opportunity.
Auto parts producers like Aptiv, BorgWarner, and Mobileye may also benefit from their growth prospects related to electric vehicles (EVs) and self-driving cars.
Considerations for Toyota:
Toyota, although a potential short-term winner during the strike, might face challenges in the long term. The company has seen significant stock price growth in recent months but could encounter difficulties if a bad labor deal affects its competitors.
Wage Increases and Future Competition:
The strike’s outcome will likely involve wage increases for auto workers. How much wages rise will be crucial, as excessively high increases could hinder GM, Ford, and Stellantis in competing with nonunion players like Rivian and Tesla in the electric vehicle market.
Navigating a UAW strike in the auto industry requires careful consideration of various factors. While the strike may have short-term impacts, investors can anticipate opportunities once a resolution is reached.
The future competitiveness of automakers in the evolving EV landscape will depend on the terms of the labor deal and the extent of wage increases.