DETROIT — The Oracle of Omaha is cutting exposure to the U.S. automotive industry amid union negotiations — potentially for good reason.
Warren Buffett's Berkshire Hathaway this week said it nearly halved its stake in General Motors in the second quarter. While the firm didn't disclose its reasoning, the year-end is expected to be a challenging one for the U.S. automotive industry amid contentious contract talks between the United Auto Workers union and GM, Ford Motor and Stellantis.
The talks, which cover nearly 150,000 U.S. autoworkers, could cost the automakers billions of dollars in additional labor costs, work stoppages or, in a worst-case scenario, both.
The new UAW leadership team has dubbed these talks the union's "defining moment." President Shawn Fain has already deployed harsh messaging and a few theatrics, including throwing contract proposals by Stellantis in a trash bin, and this late in the process there's been little to no talk about "give and take" or "win-win" deals.
"They're ready to strike if a deal does not happen," said Melissa Atkins, a labor and employment partner at Obermayer. "Going in with that mindset, I anticipate it being very contentious … and just given the history, there probably will be a strike."
Aggressive efforts by the union are great for organized labor and the embattled UAW, which is attempting to regain its footing after a yearslong federal corruption probe landed several top leaders in prison for bribery, embezzlement and other crimes — but not for the companies or their shareholders.
Here are the numbers investors should know ahead of the expiration date for current contracts between the Detroit automakers and UAW at 11:59 p.m. ET on Sept. 14.
$80 billion
Contract proposals made by the UAW at this point would add more than $80 billion in labor costs for each of the biggest U.S. automakers over the length of the contract, Bloomberg News first reported earlier this month.
"One might think of these UAW contracts as a set of three large purchase orders to secure the labor needed to assemble future vehicles, parts, and components — contracts that are collectively worth roughly $70–$80 billion over the course of the next four years," Kristin Dziczek, automotive policy advisor for the Federal Reserve Bank of Chicago's Detroit branch, wrote in a Wednesday blog post.
The demands include a 46% wage increase, restoration of traditional pensions, cost-of-living increases, reducing the workweek to 32 hours from 40 and increasing retiree benefits.
If the UAW gets those demands, without any changes to other benefits, the all-in hourly labor cost for the automakers would more than double from at least $64 per hour to more than $150 per hour, according to media reports.
That would be a significant increase over wage hikes seen during the previous four-year agreements, according to estimates from the Center for Automotive Research. The 2019 deals were projected to increase average hourly labor costs over the length of the contracts by $11 per worker for then-Fiat Chrysler, now Stellantis, and $8 per worker at GM and Ford.
Under the current pay structure, UAW members start at about $18 an hour and have a "grow-in" period of four years to reach a top wage of more than $30 an hour.
$5 billion
A work stoppage by nearly 150,000 UAW workers at GM, Ford and Stellantis would result in an economic loss of more than $5 billion after 10 days, according to Anderson Economic Group, a Michigan-based consulting firm that closely tracks such events.
AEG estimates the total economic loss by calculating potential losses to UAW workers, the manufacturers and the auto industry more broadly if the sides cannot reach tentative agreements before the current contracts expire.
In another analysis, Deutsche Bank previously estimated that a strike would hit earnings at each affected automaker by about $400 million to $500 million per week of production.
Strikes could take various forms, including a national strike, where all workers under the contract cease working, or targeted work stoppages at certain plants over local contract issues. A strike against all three automakers, as Fain has alluded to, would be the most impactful but also the riskiest and most costly for the union.
$825 million
The UAW has more than $825 million in its strike fund, which it uses to pay eligible members who are on strike. The strike pay is $500 per week for each member — up from $275 per week last year.
Strike pay is available after the eighth day of a work stoppage, and a bonus check is paid the week prior to the Thanksgiving and Christmas holidays. Recipients must be in good standing with the union and participate in picket lines to receive the assistance.
UAW members can also seek outside employment, however if their pay is $500 or more per week, they will no longer receive strike pay. They will continue to receive medical and prescription drug assistance, according to the union's website.
Assuming 150,000 or so eligible workers, the weekly strike pay would be about $75 million. A fund of $825 million, then, would cover about 11 weeks. One caveat: that doesn't include health-care costs that the union would cover, such as temporary COBRA plans.
The UAW is scheduled to hold a procedural strike authorization vote next week, which would grant union leaders the ability to strike, if warranted. The measure historically passes overwhelmingly.
1.5 million
If the union decides to strike against all three Detroit automakers, production losses would quickly add up.
S&P Global Mobility estimates a 10-week strike would mean lost production of roughly 1.5 million units, according to an investor note from Mizuho Securities USA.
A 40-day strike against GM during the last round of negotiations in 2019 led to a production loss of 300,000 vehicles, the company said at the time. It also cost the automaker $3.6 billion in earnings, GM said.
Industry experts argue a strike against all or any of the automakers would likely affect the operations and bottom lines of the companies more quickly than four years ago since the U.S. auto industry is still recovering from supply chain problems caused during the coronavirus pandemic.
Vehicle inventory levels for the automakers also are lower than they were four years ago.
Heading into 2019 contract negotiations, U.S. vehicle supply was 3.73 million — essentially enough units to last 86 days of selling under normal conditions at the time, according to Cox Automotive. The industry is currently just under 2 million units, with 56 days of sales supply.
"In 2019, there was quite a slack in there. There's almost no slack now," AEG CEO Patrick Anderson said Thursday during a webinar with the Automotive Press Association. "If we are to get a strike, within the first week, the numbers start to get serious for each of the automakers."
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