UAW strike 'ripple effects' could see more plants in Canada, Mexico

The United Auto Workers (UAW) strike enters into its third week of picketing against Big Three automakers Ford (F), General Motors (GM), and Stellantis (STLA). While union representatives are seeing progress in labor negotiations with Stellantis, the UAW has extended its picket lines to additional Ford and GM facilities. Is this strike already beginning to weigh on the auto industry?

CFRA VP & Equity Analyst Garret Nelson lays out which of the Big Three are the most vulnerable and the long-term ripple effects on auto production in the case of a prolonged strike.

"Our ratings right now, we have a strong sell on GM and that's because we think they're in the most precarious position of the Detroit Three," Nelson states. "Heading into the strike, they had far fewer inventories at the dealerships, if you look across their major four auto brands."

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Video transcript

BRAD SMITH: At what juncture would it require you-- at least the time span of the strike, if it continues to go on, at what juncture would that force you to look at your ratings and kind of reevaluate the company's kind of outlook or even your expectations for them for either the rest of this year or even going into next year?

GARRET NELSON: So, our ratings right now, we have a strong sale on GM, and that's because we think they're in the most precarious position of the Detroit 3. Heading into the strike, they had far fewer inventories at the dealerships. If you look across their major-- their four auto brands, especially Chevy and Buick, much lower inventories than either Ford or Stellantis. They also had less cash and liquidity than the other two companies.

To be clear, all three companies have sufficient cash and liquidity on the balance sheet. That's not really a concern. But if you look at the three, GM is really in the worst position of the Detroit 3. And we have holds on both Ford and Stellantis and are comfortable with those ratings. Stellantis in particular came into this strike with a huge amount of inventory, and so we think they can wait things out, you know, longer than the other two companies.

BRAD SMITH: How easy is it for these companies to restart operations that have either been stalled because of strikes or because of people walking away from the job and being away? And then additionally, even furthermore, I mean, how much is that operation going to change in the near term either because of robotics or because of artificial intelligence that gets weaved in to the manufacturing process?

GARRET NELSON: Well, it's fairly easy to restart a plant. But when it really gets complicated are the logistics and supply chain. A lot of people don't realize the average automobile contains over 30,000 parts, and so the automakers need to make sure they have all the parts required to restart and finish assembly of vehicles at these plants. And so, you know, that's where the ripple effects can really come in.

If it does damage to some of these auto suppliers and they're no longer able to produce and ship the parts that these automakers need, you know, then there's a problem. So that's really where we see a risk. And then longer term, we saw a 40-day strike by the UAW against GM just four years ago back in 2019, and here we are again.

I think the automakers, you know, they're going to have to make some strategic decisions regarding where they want their plants to be longer term. And we think, you know, one of the effects you could see is you could see more plants built in Mexico or in Canada. You know, automakers just not wanting to go through the same exercise every four year-- every four years and negotiating with the UAW, you know, who's taken a very hard line approach to negotiations.

And they're going to extract very significant concessions, which is going to drive up the labor costs of the Detroit 3, and so that's why we think, you know, really the biggest winner from the strike is Tesla-- of course, 100% nonunion company-- but also some of the foreign automakers such as Toyota, Honda, Volkswagen, et cetera.