At midnight last night, the deadline set by the United Auto Workers union (UAW) for the big three American car manufacturers, Ford (F), GM (GM), and Stellantis (STLA) to meet their wage demands was reached. The two sides of the pay dispute are still far apart, so it came as no surprise that the deadline came and went without an agreement, and that strikes against the manufacturers started. I am old enough to remember when concerted industrial action by autoworkers could cripple an economy, but obviously that isn’t the case these days.
Car manufacturing makes up a much smaller percentage of the U.S. economy today than it did a few decades ago but even so, there has to be an impact when thousands of workers withhold their labor. So, should investors be worried?
If you look solely at this morning’s price action in the stocks of the big three, or for that matter at the market overall, you would say most certainly not. Ford and GM stocks are trading lower in this morning’s premarket than they closed yesterday, but only by a fraction of a percent. Stellantis is even trading above yesterday’s close as I write, and the major indices are mixed but basically flat. In the case of the auto manufacturers’ stocks, that definitely has a “sell the rumor, but the fact” feel to it. As I said, the decision to strike came as no real surprise, and you would think it had been priced into F, GM, and STLA for some time. But the evidence doesn’t support the contention that a big negative from the strikes was already priced into the stocks.
The above chart shows the S&P 500 ETF, SPY as the main, light blue body, with GM in blue, STLA in red, and F in green, for the last month, the time during which negotiations stalled and a strike began to look likely. As you can see, far from the stocks pricing in bad news, two of the three have outperformed the broader market by quite healthy margins in that time, with GM underperforming slightly.
So, if the “already priced in” argument doesn’t account for the lack of a reaction, what does?
The shrug of the shoulders is more about the likely duration of the dispute and its possible outcome than the simple fact that there is a strike in the first place. If you have been paying attention for thirty years or so, you don’t need me to tell you that American unions aren’t what they once were. There has been a move towards non-unionized labor in many industries, including auto manufacturing, which has inevitably reduced the unions’ power. One could say that they brought that on themselves by abusing their power in the post-WWII era and making demands that crippled the industry, but that isn’t really the point here.
When unionized workers in Michigan or Ohio strike, the manufacturers start to rumble about shifting more production to Alabama, Mississippi, Mexico, or some other place that is poor enough that low, non-union wages still look attractive. The longer a strike goes on, the more believable that threat becomes, and union members know that. So even if their leaders believe there is a point to be made and that they are morally in the right, support for strikes among the rank and file can fade quickly.
One could indeed argue that the unions are morally right here. During the current resurgence in the fortunes of car manufacturers over the last decade plus, their member's wages have fallen while CEO and C-Suite salaries have soared. That suggests that all of the credit is being given to a handful of individuals -- those same individuals who were in charge when the industry was on the verge of collapse.
Clearly that is absurd, and CEOs who have awarded themselves millions of dollars in raises while inflation eats at their workers’ standard of living have only themselves to blame when those workers say "enough!"
However, that widening gap between workers’ and CEO compensation is not just an auto industry thing. According to this NPR report, in 1965 CEOs typically earned around twenty times the average earnings of workers at their companies, but by 2021, that had increased to around four hundred times.
The published numbers from the big three suggest that the situation there reflects that average, with GM CEO Mary Barra, for example, making 362 times the pay of their median employee. Even that, though, is moderated by the fact that the median employee number includes highly paid managers along with hourly paid workers. As the UAW President, Shawn Fain points out, "That means a newly hired Ultium (GMs joint venture battery plant) worker would have to work full time for 16 years to earn what Mary Barra makes in a single week."
That means this isn’t an auto industry thing, it is a societal thing. If the unions are truly going to win in this dispute, they would have to change the societal views that have allowed and encouraged that widening pay gap. The market is betting that they won’t be able to do that, which seems like a fair assumption. The unions may be able to move the companies slightly from their current position, but not so much as to do any noticeable damage to the profits of Ford, GM, and Stellantis, let alone have any impact on the economy or the stock market.
That is what the market is telling us, and it is the logical conclusion when you look at the current situation. Even though there will probably be some scary headlines should the dispute escalate, investors can probably ignore these strikes unless and until the paradigm shifts.
* Disclaimer: The author has a long position in GM at the time of writing
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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