BofA Warns Clients Detroit Auto "Strike Almost Guaranteed"

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by Tyler Durden
Friday, Sep 08, 2023 - 10:00 PM

The United Auto Workers are nearing the end of their negotiations with Detroit's "Big Three" automakers - General Motors, Ford, and Stellantis, the producer of Chrysler - concerning a new four-year labor agreement for approximately 146,000 workers. The current labor contract expires next Thursday as the union has made demands that even the UAW's own president calls "audacious." 

General Motors and Ford have already sent their proposal contracts to UAW earlier this week and last -- only to get quickly rejected. On Friday, Stellantis made its first proposal on wages of around 14.5% -- still well under UAW President Shawn Fain's demand of 46% over four years

The automakers' underwhelming offers put President Biden in a tough spot ahead of next week. "Union Joe," while relaxing at his beach house in liberal white-elitest Rehoboth Beach last week, said he 'wasn't too worried about potential strikes.' 

Fain has described the labor talk discussions with Detroit's Big Three as a battle between billionaires and the working class. As the deadline looms, none of the proposals have met the union's demands, which has led John Murphy, a senior auto analyst at Bank of America Securities, to warn clients on Friday: "Strike almost guaranteed" next week. 

Murphy expects negotiations will result in a 25-30% increase in labor costs over the next four years with "sizable cash signing bonuses and adjustments to other benefits" once contracts are finalized. 

He said the word on the street is "UAW may offer a counter-proposal to the OEM offers shortly" but warned, "We continue to believe a strike is very likely after the Master Agreement expires next Thursday, September 14." 

Murphy explained if a strike was to occur next Thur., then negative headlines could weigh down automaker stocks: 

Should this occur, it could drive some headline-related downwards movement to the stocks, but our discussions with investors and the valuations for GM and Ford (with the stocks down - 15% and - 9%, respectively since 7/31 vs. - 3% for S&P 500) suggest the stocks largely reflect the risks of a material strike. The UAW's strike with GM in 2019 lasted 6 weeks and a one - to two-month strike appears to be the likely outcome here, in our view.

When BofA's note was published, Stellantis had not disclosed their proposal to the union. Below is a comprehensive overview of the offers from Ford and GM and how they match up with UAW's demands.

Everyone is eagerly awaiting UAW's counter-offer before the deadline next Thursday. Union Joe may care a little more this weekend.