(Bloomberg) -- United Auto Workers President Shawn Fain's unprecedented decision to attack all three of the big Detroit automakers at once in a chaotic six weeks of targeted strikes appears to have paid off for workers, yielding deals richer than the union has realized in decades.
Now, after the companies have seen combined losses of about $2.9 billion, the question becomes whether they can thrive under the contract terms.
Early indications suggest that gains won by the union's 146,000 members will not be as much of a blow to Ford Motor Co., Chrysler-parent Stellantis NV and General Motors Co. as early rhetoric suggested.
While the agreement's 25% wage increase, restoration of cost-of-living allowances and other benefits will add $850 to $900 to the cost of every car Ford builds, and shave 60-to-70 basis points from its margins, the company said it expects to find efficiencies to offset the higher labor costs. GM and Stellantis will likely do the same.
Stellantis, which owns the Jeep and Ram brands, said Tuesday the strike cost it more than $3 billion in loss revenue but only about $800 million in profits — less than GM and Ford.
“We believe that GM should be able to offset most of the UAW-driven increased wage headwind,” Chris McNally, an analyst with Evercore ISI who rates GM “outperform,” wrote in a note to investors.
Since the start of contract talks in July, investors have whacked $40 billion from the market value of GM and Ford.
But Monday after the market closed Monday, Standard & Poor's upgraded Ford's credit rating to investment grade, in part on expectations “that Ford's cost reduction over the next 24 months will more than offset higher labor-related costs.”
Deal Math
Based on the Ford details, the labor accords will be front-loaded with double-digit pay increases, but avoid the long-term obligation of defined-benefit pensions. Instead, the companies will boost contributions to 401(k) retirement savings plans — a far thriftier option for the automakers.
Fain's selective strike — which in the end closed nine assembly plants and 38 parts distribution facilities — still allowed roughly two-thirds of the automakers' plants to continue to churn out cars.
“We are expecting minimal issues with factories getting back up to speed,” Jonathan Smoke, chief economist for researcher Cox Automotive, said, adding that “inventory levels at dealerships held up reasonably well during the strike.”
Read More: What Autoworkers Gained by Staging a Six-Week Strike: QuickTake
In the end, the six-week strike cost the automakers less than the 40-day walkout GM endured during contract negotiations in 2019. The tab for that strike, which took down GM's entire operations, was nearly $3 billion. Last week, Ford said this strike cost it $1.3 billion, while GM put its losses at $800 million through Oct. 24.
Furthermore, Detroit automakers' labor-cost disadvantage could narrow, because the UAW's big wage gains will put pressure on non-union companies, like Tesla Inc. and Toyota Motor Corp.
“You're either going to have to pay more or you're going to have the UAW organizing outside,” said Art Wheaton, director of labor studies at Cornell University's School of Industrial and Labor Relations. “These are really big improvements for working class and lower-paid workers.”
The labor costs of the three Detroit companies, including wages and benefits, will rise to $75 to $78 an hour by the end of the agreement, based on details from the Ford contract, Colin Langan a Wells Fargo analyst, said in a note. Current all-in labor costs for Ford are $64 an hour.
EV Compromises
The issue of unionizing future electric vehicle and battery plants wasn't as big a burden as some automakers had feared. The union didn't get a green light to organize all the $28 billion worth of battery plants the automakers are building in the US with South Korean joint-venture partners.
The union did win transfer rights for UAW-represented workers into Ford's new electric truck plant being built in Tennessee, and its Michigan battery plant, which paused construction while negotiations were underway. And Ford will provide a “pathway” for future EV workers to be able to come under the union's master agreement.
Those and other inroads in the GM and Stellantis deals could give the union a hedge against the unfavorable math on electric drivetrains, which requite 40% less labor than traditional internal combustion engines.
Read More: GM Delays Electric Pickup Truck Expansion Amid Slower Growth
But the urgency surrounding EVs, which was intense as talks started this summer, subsided in the fall as buyers balked at high prices for battery powered models.
Both Ford and GM have now throttled back ambitious production plans. A rich labor contract may make them go even slower, which could hurt their market share in the long run and complicate efforts to compete with Tesla, said Manish Dua, a senior analyst at Benchmark Mineral Intelligence.
The higher wages that “squeeze the hell out of these companies” could also push manufacturers to automate even more of EV production, he said, reducing the labor force.
--With assistance from Josh Eidelson.
(Updates with Stellantis report on strike costs in fifth paragraph.)
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