The Potential Impact of an Auto Strike on Workers' Compensation

The Detroit-Three auto makers - General Motors (ticker: GM), Ford Motor (F), and Chrysler parent Stellantis (STLA) - are currently facing a strike by the United Auto Workers. As the strike continues, the costs are starting to add up, and this could have severe consequences for workers, particularly considering the time of year.

Should the strike extend for three months, it would carry on into early December. This duration could potentially result in the elimination of most, if not all, of the annual profit-sharing checks that workers typically receive from the auto makers. The risk of reduced profit-sharing is an example of the high-stakes game being played by both the union and car companies.

Essentially, reduced profit-sharing goes hand in hand with reduced profit. While each auto maker employs different formulas to calculate profit-sharing, it generally amounts to approximately $1,000 for each hourly worker per $1 billion in North American operating profit generated annually.

In recent years, profit-sharing has provided a significant boost to hourly auto workers' compensation. For instance, Stellantis COO of North American operations Mark Stewart reveals that their full-time employees received around $44,700 in profit-sharing over the past four years. Ford reports an average payout of about $9,000 per worker in 2022, while GM distributed $500 million to its workforce - equivalent to $12,000 to $13,000 per employee.

Naturally, the crucial question revolves around how much profit erosion a strike can cause. To shed light on this matter, let's consider the impact of the 40-day strike against General Motors in 2019. Despite costing the company approximately $3.6 billion, GM still managed to earn $8.4 billion for the entire year. Extrapolating this rate of profit erosion suggests that it might take a 20-week strike to entirely eliminate profits. Ford, being slightly less profitable than GM, could witness its profits dissipate in approximately 12 to 13 weeks.

All in all, it is evident that an extended strike in the auto industry could have profound consequences for workers, particularly regarding their compensation. As the battle between the union and car companies intensifies, both parties must carefully weigh the potential ramifications of their actions, while workers anxiously await the resolution of this high-stakes dispute.

Strike Impact: Reduced Pay and Layoffs

No, or smaller, profit-sharing checks coming early in 2024 are compounded by lower pay. Striking workers get about $500 a week from the UAW strike fund. That’s about $700 a week less than the average hourly wage. A three-month strike could effectively end up costing workers roughly $18,000 in wages over the final months of 2023.

Strike Pay Eligibility

Striking workers are eligible for strike pay. GM and Ford have laid off some workers after the UAW struck against specific facilities. It isn’t clear whether laid-off workers will get strike pay. The UAW didn’t immediately respond to a request for comment.

Impact on Laid-Off Workers

The layoffs were a direct result of the strike. Ford’s Michigan Assembly complex that makes Rangers and Brocos illustrates the problem. The UAW leadership instructed paint shop and final assembly workers to walk out. That leaves no work for other departments at the plant so Ford told the plant’s other employees not to come in. The laid-off workers won’t be eligible for supplementary benefits from Ford and striking workers generally don’t qualify for unemployment benefits in Michigan.

Cumulative Costs

Costs from a strike accumulate rapidly on both sides. There is a lot at stake for auto makers and hourly employees. The best outcome is a deal that both sides can live with and that is reached quickly.

Market Performance

Shares of Ford and GM are both down about 16% over the past two months as labor negotiations heated up. The S&P 500 is down about 1% over the same span. Stellantis stock is up about 3% over the past two months. Its shares have held up better than shares of the other two auto makers with roots in Detroit.