UAW President Shawn Fain marches with UAW members through downtown Detroit on September 15, 2023.
Auto companies could forgo stock buybacks to pay for the costly union demands, an analyst said.
Strikers have pointed out the billions of dollars companies have poured towards buybacks and dividends.
Some investors have expressed willingness to sacrifice stock repurchases.
However the UAW’s strike is resolved, addressing the union’s demands is unlikely to come cheap for the Big Three automakers.
Think about the ask: a 36% general wage increase over a four-year contract and a return to traditional pensions, among other things. And that’s drawn attention to the billions of dollars the companies have paid to shareholders.
According to SEC filings, GM spent $2.5 billion on buybacks in 2022, while Ford spent $484 million. And since 2010, GM has said it repurchased $14.2 billion in stock, while Ford bought back $3.5 billion in shares from 2012 to 2022, according to data from Bloomberg, which noted that Ford prefers to pay dividends.
Stock buybacks are usually a good sign for investors, raising share prices and signaling strong financial health. But for the UAW, it’s a sign of sharing more profits with shareholders than workers. In fact, one of the union’s demands has been to pay $2 per worker for every $1 million companies spend in buybacks and dividends.
“We believe the companies could sacrifice some of their buybacks in the near-term (for instance a quarter). Once a contract is completed, there will likely be payments made for signing bonuses, etc.,” Edward Jones analyst Jeff Windau told Insider. “These types of near-term hits to cash may require the sacrifice of a buyback.”
He also pointed out that buybacks and dividends are a use of cash that’s available after companies invest in their businesses. If expenses go up significantly and don’t allow for buybacks, then companies could be pressured during challenging economic environments, he added.
Some investors seem ready to sacrifice stock buybacks.
“There is probably a happy medium where you maybe can stop share buybacks for some time and share that equity with labor and not just shareholders,” Brian Mulberry, a client portfolio manager at Zacks Investment Management, which owns Ford shares and manages $15 billion in assets, told Bloomberg last week.
But Patrick Kaser, a portfolio manager for Brandywine Global, which has a stake in GM as part of its $54 billion in assets under management, seemed unwilling to accept lower dividends.
“A dividend cut will be a very bad sign. Stopping or cutting them will really be a statement that the companies don’t have extra cash,” he told Bloomberg.
Stellantis declined a request for comment. Ford and General Motors did not immediately respond to a request for comment.
Meanwhile, the strike’s cost to carmakers is mounting. The first two weeks have seen a total economic cost $3.95 billion, including direct wages, manufacturing losses, and supplier losses, according to the Anderson Economic Group consulting firm.
And if the rolling strike expands to all UAW members, that could cost companies billions of dollars every week.
“You could be talking 50,000 to 60,000 vehicles per week if they went out on a full strike,” said Windau. “That translates to a couple billion dollars per week of sales, $2 [billion] to $3 billion dollars, potentially. Those are all items that have been impacting the overall performance of the stock.”
Ford’s stock has fallen 3.7% since the strike began, and GM has dropped 4.6%. Stellantis is up 0.1% as expanded strikes didn’t target any of its plants.
“The issues of the UAW strike are already affecting investors,” said Patrick Anderson, founder of the Anderson Economic Group. “No company can stay in business over a long period of time, without earning enough money to pay all of its costs including its labor costs. And the auto industry is highly competitive.”