A potential strike starting as soon as Friday would cost the economy billions of dollars.
LM Otero/Associated Press
A United Auto Workers union strike could occur as soon as Friday.A 10-day strike could cost the economy $5.6 billion and hurt Biden in the election.The UAW has until Thursday night to agree to an offer with Ford, GM, and Stellantis.
The clock is ticking as a strike looms at the US’s three major unionized automakers, and a walkout could cost the economy billions.
A strike by the United Auto Workers union against Ford, General Motors, and Stellantis — which could come as soon as Friday — could damage the economy and drive up inflation, the economic-consulting firm Anderson Economic Group said in August. A 10-day strike of over 143,000 workers could reduce the nation’s gross domestic product by $5.6 billion, AEG found, which could push Michigan into a recession.
Nearly $1 billion of this total would come directly from company losses, while another $859 million would be lost from worker pay, AEG estimated. The industry overall would lose over $3.5 billion, AEG projected. The automotive industry makes up about 3% of US GDP.
The contracts at the three automakers expire at 11:59 p.m. on Thursday. If the strike goes through, it will be among the country’s largest in the past several years.
If the strike lasted only a few days, the three automakers might not struggle too much, given all have inventories that could last about two months — and much longer for some models. Deutsche Bank analysts wrote in a note, though, that a strike could influence each automaker’s earnings by $400 million to $500 million for each week of lost production.
At the start of the pandemic, automakers faced supply-chain constraints, particularly with computer chips, that hindered vehicle production. Despite a lack of inventory, industry profits skyrocketed, even though 2022 was the worst year for sales for the auto industry in over a decade.
A UAW strike could damage the Fed’s progress in bringing inflation down to its 2% target. Inflation was about 3.2% as of August. New-vehicle prices may increase nearly 2% in the case of a two-week strike, the automotive-consulting firm J.D. Power told Reuters.
Inflation may stay on pace even if UAW quickly wins higher wages, given many auto workers did not see major wage gains earlier in the pandemic given they were locked into contracts, Bloomberg reported.
UAW President Shawn Fain has demanded retiree healthcare and traditional pension payment plans, which were taken away for new hires in 2007. To better protect union members from inflation, the union has pushed for a return to cost-of-living adjustments, 32-hour workweeks, and an immediate raise of 20% followed by four additional 5% raises.
The union has also expressed concern over the companies’ transition to electric vehicles, which have fewer moving parts and require about 30% to 40% less labor to assemble than gasoline-powered cars do.
“We are ready to negotiate in Detroit 24/7, just as we have been for the past seven weeks since we gave them our Members Demands,” Fain said in a statement on Monday. “Despite receiving no response for over a month, when the CEOs are ready to make a serious offer we’ll be there, day or night.”
Bloomberg reported that these wage increases and other changes could amount to over $80 billion in additional expenses for each company over four years.
Other companies that heavily rely on these automakers, such as auto-parts makers, which get as much as one-third of their revenue from these three companies, are also expected to see major drops in earnings in the event of a strike.
Bloomberg reported a UAW strike against any of the automakers could have a similar impact on the auto industry as the six-week 2019 GM strike, which cost GM about $2.9 billion and hurt auto-parts makers and steel producers. Steel production is also expected to fall.
The UAW has rejected offers from the three companies, which included pay raises between 14.5% and 16% for most union employees.
The strike could seep into politics as campaigning picks up for the 2024 presidential election. Key swing states such as Michigan and Wisconsin would likely take large economic hits from the strike, which could hurt President Joe Biden’s chances of winning next year.
Car prices have been leveling off as manufacturers have built up inventories since the big price spikes at the height of pandemic supply-chain woes. But a strike could cut into those inventories, leading to renewed price hikes and a new round of customer anxiety.
Biden said last week he expected the strike to be avoided, though he lacks the legal authority to order both sides to continue working. Deputy Treasury Secretary Wally Adeyemo confirmed to CNBC Monday that the Biden administration anticipated a deal between UAW and automakers after appointing top officials to help facilitate talks.
The UAW, which has historically supported Democrats, has not endorsed Biden’s reelection campaign.
“I think our strike can reaffirm to [Biden] of where the working-class people in this country stand and, you know, it’s time for politicians in this country to pick a side,” Fain said during CNBC’s “Last Call” with Brian Sullivan. “Either you stand for a billionaire class where everybody else gets left behind, or you stand for the working class, the working-class people vote.”