The labor contract between the United Auto Workers and the Detroit-Three automakers expires Thursday. A deal has not been struck and Wall Street believes a strike is almost certain.
Investors need to figure out what to do with car stocks if a strike occurs. A prolonged shutdown in the latter parts of 2023 could impact other sectors and overall economic growth. However, leading them all doesn’t have to be overwhelming. Whatever happens there will be some stocks to buy afterwards.
Keep things in perspective
New UAW President Shawn Fine is an extension of the dramatic, literally trash plans of Ford Motor ( F ), General Motors ( GM ) and Chrysler parent Stellandis ( STLA ). That’s a little worrisome for investors and one reason why the Street thinks some layoffs are possible.
Also, the strike will have wide-ranging implications. Large numbers, often in the billions, are rounded up daily but any strike will eventually settle and most economic activity, such as the production and purchase of new cars, will shift to different months on the calendar.
Cars are important to the economy, but the labor agreement between United Parcel Service (UPS) and the Teamsters union affects about 340,000 workers. Fewer than 150,000 workers are affected by the current negotiations. There are more 160 million workers In America
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Numbers, numbers, numbers
The total number of workers directly affected by the strike is small. The overall impact on the US economy was not large.
The Anderson Economic Group estimates that the UAW strike costs the U.S. economy about $500 million a day. A 10-day strike is 0.02% of total US annual economic output.
Andersen gives auto manufacturing a roughly two-fold economic boost, meaning that for every dollar workers don’t spend due to the strike, the economy will have a $2 impact on the economy from lost wages, production, dealer sales and lattice purchases. Starbucks (SBUX). Investors can use that number and multiplier to track impacts.
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In terms of car companies, GM, Ford and Stellantis account for about 40% of the US market for cars and light trucks. The trio’s North American production output, excluding Sundays, is about $1 billion a day. UBS analyst Joseph Spock pointed out in a report this week that auto parts companies lost 0.3% of full-year sales for every 10 days of the strike.
That is the risk to companies. For consumers, lower auto production means a lower supply of new vehicles and higher prices for new and used cars, as well as higher prices for auto insurance. Insurance rates are tied to the value of the vehicles.
Insurers at CrossShares
JPMorgan analyst Jimmy Fuller pointed out in a September report that higher auto prices are weighing on insurers like Allstate ( LL ) and Progressive ( BGR ). The problem is that insurance rates have lagged behind rising car prices, squeezing profit margins. Fuller liked both stocks, rating them a buy because profit margins are rising again after the pandemic curbed auto production and pushed up car prices. However, a longer strike will delay the rebound. Investors should wait to see what happens before jumping into auto insurance stocks.
Why can auto parts shine?
Shares of auto parts makers, which have been weak in recent weeks, could shine. Aptiv (APTV), BorgWarner (BWA), and Mobileye
( MBLY ) shares are down more than 10% on average over the past two months.
UBS analyst Joseph Spack has buy ratings on all three stocks. That’s partly because of the recent downturn and partly because of business related to EVs and self-driving cars, all three of which have seen above-average growth.
Why Ford and GM Can Bounce Back
Shares of GM, Ford and Stellantis have averaged about 16% off their 52-week highs, with much of that decline coming in the past two months as labor rhetoric heated up. The
S&P 500
It has been steady for the last two months. They were clearly expecting a strike.
Now the strike is almost here and will eventually be resolved. Many on Wall Street, including BofA Securities analyst John Murphy and Morgan Stanley analyst Adam Jonas, expect the automaker’s stock to rebound after the deal. It seems like a possibility.
That sounds like a reason to avoid Toyota Motor ( TM ) stock for a while. Shares have risen about 18% in the past two months. Toyota may be a one-strike winner, but it’s a short-lived winner.
Cars stocks for long term
A bad deal, however, could continue to weigh on shares of Ford, GM and Stellantis. Wedbush analyst Dan Ives says: Baron’s A 5% annual wage increase could put non-union players at a competitive disadvantage, including GM, Ford and Stellandis and Rivian Automotive.
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(RIVN) and Tesla (TSLA).
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Both auto workers and companies will declare victory once a deal is concluded. It is difficult to ascertain how fast wages are rising. Vehicle contracts include wage increases and lump sum payments. Whatever represents a 4% annual increase doesn’t matter.
Inflation has averaged 4% over the life of the current labor contract compared to the life of the previous contract. Manufacturing wages for the UAW were capped at $32 a share in the 2019 contract, according to the Federal Reserve. Average hourly earnings in the United States About $32.50According to the Bureau of Labor Statistics.
Wages should rise, but how much they rise will determine whether GM, Ford and others can effectively battle Tesla for the EV future.
Write to Al Root at [email protected]
