UAW president Shawn Fain raised some eyebrows recently, during a Facebook Live video address to the union faithful.
In an hour long talk, Fain, a 20-year UAW veteran and a former shop chair at Stellantis' Kokomo Indiana plant, told members what he had planned for the Big 3 (GM (GM), Ford (F), and Stellantis (STLA), formerly Chrysler), for this year's contract negotiations. The bottom line: after all the sacrifices the UAW had made over the years, the days of rolling over were done. The bill is due.
"I’ve been told I am crazy to raise member expectations this high as we head into bargaining," Fain said in his address. "I refuse to allow employers, the billionaire class and sellouts to play on our fears."
The stakes couldn't be higher for the UAW and the Big 3.
The current contract ends on September 14th, at which point a work stoppage could occur if a deal hasn't been struck. The negotiations, if Fain's speech is any indication, will be the most contentious in recent memory. Why? Fain and current UAW leadership believe the union has give up too much in the past.
The increased rancor has already made a mark. Shares of the Big 3 automakers all dropped steeply this past week, largely because Wall Street is concerned that a work stoppage would seriously impact automakers as they navigate a generational, and costly, electric transformation
Among the demands set out by Fain and UAW leadership: “substantial wage increases” which amount to a 46% gain over three years, eliminating compensation tiers for new and old workers (which the UPS Teamsters secured), restoring cost of living adjustments, providing a new pension plan, and reducing work weeks to 32-hours from the standard 40.
Making such demands public isn’t typical. In the past, the UAW and Big 3 go behind closed doors to negotiate—after a contract is hammered out, the UAW presents the proposed contract to its members for a vote. But publicly releasing contract demands may backfire for the union: it may put pressure leadership to avoid compromise, thus upping the likelihood of an impasse with the Big 3 negotiators.
But the tough guy talk may be a plus: Fain, in essence, may be preparing the rank and file for a long, rough fight.
And it may be a long fight indeed because caving in would be too costly for the Big 3. According to Bloomberg, the cost of the UAW demands could amount to $80 billion over the course of the contract, which typically last 3 to 4 years.
Fain's demands caught Big 3 leadership off guard,
“Everyone understands these demands aren’t going to happen – it would be suicidal for the companies to agree to this,” one industry source told Yahoo Finance.
The UAW's wish list would amount to $25 -$30 billion per automaker over the life of the contract. “That adds $35 to $40 per hour to active labor cost – an increase of roughly 60%,” the source said. The impact: automakers would return to the “bankruptcy era,” and more than double the labor costs for the Big 3 versus non-union automakers like Tesla (TSLA).
When reached for comment, a UAW spokesperson noted the industry source’s take misrepresented a few key points.
“The Center for Automotive Research in Ann Arbor estimates that labor is just 5.1% of the cost of the average vehicle. That's a very important data point to take into account when the automakers claim that our demands will be catastrophic,” UAW spokesperson Jim McNeil said.
McNeil also noted that the rising MSRPs of Big 3 vehicles have not been driven by labor. “[A recent study] published by the BLS shows that dealer markups have been driving up the costs of new cars, NOT labor costs.”
Finally McNeil pointed to a recent statement made by Fain talking about the costs borne by UAW workers over the past decade and a half. “Overall, the starting pay for a Big Three worker today is almost $21,000 less than it was in 2007 when adjusted for inflation. UAW members made enormous sacrifices to save the automakers during the Great Recession, but we’ve never been made whole.“
All that aside, the Big 3 leadership has been striking more of a conciliatory tone at least publicly. GM President Mark Reuss recently told Yahoo Finance that GM is negotiating for a deal "that works for everybody in good faith.”
Meanwhile, Ford Chairman Bill Ford has said that the UAW isn’t the “enemy,” and wants to find common ground.
But Stellantis, which just this week saw Fain throw its contract proposal into the trash in another Facebook Live video, said the UAW needs to focus on “reality.”
Per Reuters: "[The UAW] demands could endanger our ability to make decisions in the future that provide job security for our employees," Stellantis North America COO Mark Stewart said in a statement to employees. "This is a losing proposition for all of us.”
What's at stake for the Big 3 and investors
Wall Street is anticipating the worst.
Last week CFRA analyst Garrett Nelson double-downgraded GM to ‘strong sell’ and slashed his price target to $28 from $40. He cited in a client note “the growing risk of a UAW strike, given reports that the company and union remain extremely far apart in labor negotiations... [and] newly-elected UAW President Shawn Fain appears to be aggressive and eager to make his mark with the Detroit Three.”
Nelson also said that the last UAW strike in 2019, which last 40 days, impacted GM’s earnings by $1.89 a share.
Morningstar automotive analyst David Whiston echoed those concerns, particularly for GM and Ford, which are more tied to the UAW compared to Stellantis, which has a bigger international labor presence.
“GM and Ford may be in the penalty box for a while. Wall Street hates uncertainty,” Morningstar analyst David Whiston said. “This is not a normal negotiation both in style and the demands they are asking.”
“This is a different time,” added longtime Detroit Free Press automotive writer Eric Lawrence to Yahoo Finance. “The union is talking in terms that they probably haven't talked in a long time, they've kind of come out swinging. They've kind of put the automakers on notice, and they've told the workers that they expect to fight for a lot of this contract.”
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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