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Shares of Detroit Three briefly hit as US workers' strike raises profit worries

Published 09/15/2023, 05:26 AM
Updated 09/15/2023, 10:50 AM
© Reuters. FILE PHOTO: United Auto Workers cheer for their fellow union members as they walk out of their jobs at the Ford Michigan Assembly Plant in Wayne, Michigan, U.S., September 14, 2023. REUTERS/Eric Cox/File Photo/File Photo
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By Abhijith Ganapavaram and Nathan Gomes

(Reuters) -A strike by U.S. auto workers briefly hit shares of Ford Motor (NYSE:F), General Motors (NYSE:GM) and their suppliers on Friday on worries that the labor action at the factories that make some of the most profitable vehicles could hurt earnings.

The walkouts will halt production at three factories of the "Detroit Three" automakers that make Ford Bronco, Jeep Wrangler and Chevrolet Colorado pickup truck, along with other popular models.

Ford and General Motors fell in early trade before reversing course to trade up 1% and 2%, respectively, while U.S.-listed shares of Stellantis (NYSE:STLA) were up 1.4% after falling marginally in premarket trading, as hourly workers, represented by United Auto Workers (UAW) union, began their most ambitious U.S. labor protest in decades.

"Wall Street believes this will be a short-lived strike," Wedbush analyst Dan Ives said.

The escalation came as talks between the UAW and the Detroit Three are yet to result in an agreement, though executives said talks have made some progress.

"Despite the noise around the strike ... Ford appears closest to getting a deal done in terms of procedure and numbers, GM may not be too far behind, but Stellantis has a long way to go," BofA analysts said.

The UAW chose to walk out at some plants instead of all, giving its hard-charging president Shawn Fain some leverage with talks over the next few days while also limiting the union cost in terms of strike pay, which is paid from an $825 million fund.

About 3,600 UAW members work at the Wentzville, Missouri assembly plant of General Motors, which makes vehicles such as the Chevrolet Colorado, GMC Canyon, and Savanna.

"Holding all-else constant (including the potential for other segments to make up lost production volume), a Wentzville strike through September would negatively impact our GM Q3 estimated EBIT by roughly 2% and Q4 by about 13%," Citi analyst Itay Michaeli wrote in a note.

For Ford, the Michigan plant, which makes the Ford Ranger and Bronco models, Michaeli said, "we estimate a similar monthly impact from the Michigan Assembly strike at about 15,000 units or about $140 million EBIT (holding all-else equal)."

The targeted strike can also inflict maximum pain on the automakers given the profitability of SUVs and pickups, Evercore ISI said. But they can boost production to make up for lost sales if the stalemate is short lived.

The standoff has also become a political issue, with President Joe Biden, facing re-election next year, calling for a deal.

The UAW has not endorsed Biden's re-election. His administration is pouring billions in federal subsidies into expanding sales of electric vehicles, but EVs require fewer jobs.

Since the contract talks began in mid-July, U.S.-listed shares of Stellantis have risen about 2%, while Ford and GM shares have fallen about 17% each.

© Reuters. FILE PHOTO: United Auto Workers cheer for their fellow union members as they walk out of their jobs at the Ford Michigan Assembly Plant in Wayne, Michigan, U.S., September 14, 2023. REUTERS/Eric Cox/File Photo/File Photo

Meanwhile, shares of auto suppliers that supply to one or all of the Detroit Three briefly fell on Friday. American Axle (NYSE:AXL) & Manufacturing, Dana Inc and Adient (NYSE:ADNT) fell about 1% each before recouping losses.

Supplier Magna International (NYSE:MGA) said on Friday it was monitoring the situation and was prepared to temporarily scale back production if needed.

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