A lot has happened in the third quarter, especially in recent weeks.
From the release of August’s consumer and wholesale inflation reports and U.S. retail sales report to the September Federal Open Market Committee (FOMC) meeting, there has been no shortage of newsworthy headlines.
Probably one of the biggest and most surprising headlines, though, was the United Auto Workers (UAW) unprecedented strike at all of the Big 3 auto manufacturers last week. The Big 3 manufacturers are Ford Motor Company (F), General Motors Company (GM) and Stellantis N.V. (STLA) (Chrysler’s parent).
The strike continues to make headlines today, with UAW President Shawn Fain saying that the union will now expand its strike by walking out of 38 General Motors and Stellantis facilities in 20 states.
So, in today’s Market 360, let’s dig into the details of the strike, what it means for the EV companies, and how to protect your portfolio.
Strike! Read All About It…
The UAW has never staged a strike at the Big 3 assembly plants simultaneously, but that’s exactly what it did on last Friday, with workers staging walkouts when contract negotiations failed.
The UAW had 12,700 workers strike at a Ford plant in Michigan (one that makes Broncos), a GM plant in Missouri (one that makes Chevrolet Colorado pickup trucks) and a Jeep plant in Ohio (one that makes Wrangler SUVs). Interestingly, there is excess inventory of these vehicles on dealer lots, so a short strike of two weeks or so could help the Big 3 get their inventories under control.
The UAW strategy is supposedly designed to methodically cut the production of profitable vehicles while minimizing the impact on their strike fund. On Monday, the UAW rejected Stellantis’ offer for a 21% pay raise, as it’s looking for a 36% pay raise over the next few years, down from its initial 40%. The UAW had stated that it was prepared to expand strike locations depending on how the contract negotiations progress – and, I said before, it did so just today.
“We will be everywhere from California to Massachusetts, from Oregon to Florida,” Fain said.
The UAW president also stated that the union recognizes that “Ford is showing they’re serious about reaching a deal,” although “Stellantis and GM in particular are going to need some serious pushing.”
The fact is that until the Big 3 make money on electric vehicles, the UAW will continue to lose their leverage. Essentially, the Big 3 want to use their profits to make the transition to EVs, which is currently unprofitable. As you know, the push for more EVs versus internal combustion engine (ICE) vehicles comes directly from Washington, D.C. The Biden administration is forcing the Big 3 to make EVs.
Yet, last Friday, President Biden urged the Big 3 to share more of their profits with the UAW. Again, the Big 3 are not making money on the EVs that the Biden administration is mandating. So, something has to give, and a long-term UAW strike is growing more likely.
It is important to note that, in the end, the real winner of this strike is Mexico – as these companies are likely going to divert more of their production there. Stellantis has already discussed moving its Ram pickup truck production from the U.S., and GM is already huge in Mexico.
So, the more we go down the EV pathway, the less there might be in America.
The Picket Lines and Your Portfolio
The reality is the Big 3 auto manufacturers are nowhere near a deal after eight days.
Right now, I suspect the strike could push the unemployment rate up to 4% and cause GDP growth to dip. Both those factors are top concerns for our “data dependent” central bank and could come into play at upcoming FOMC meetings. But, in the meantime, inflation remains a top concern for the Federal Reserve, and rising crude oil and gasoline prices in the third quarter gave FOMC members pause at the September FOMC meeting this week.
Now, a lot can happen over the next three months, especially if energy prices continue to rise, the UAW strike persists, and the Federal government shuts down. I don’t think the government will shut down, but an extended UAW strike will push the unemployment rate up, and the Fed is very sensitive to unemployment. The Fed also wants to continue to engineer a “soft landing” for the U.S. economy.
So, what does all of this noise mean for your portfolio?
The reality is if you want to make money right now, then you want to invest in the sweet spots of the economy… like companies with superior fundamentals.
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