In the runup to the United Auto Workers strike, shareholders shaved $20 billion off the market values of General Motors Co. and Ford Motor Co., and more pain is looming for the stocks as the walkout creates uncertainty and potentially pushes up wages.
(Bloomberg) — In the runup to the United Auto Workers strike, shareholders shaved $20 billion off the market values of General Motors Co. and Ford Motor Co., and more pain is looming for the stocks as the walkout creates uncertainty and potentially pushes up wages.
The UAW has threatened to extend the scope of the strikes, and a prolonged period of work stoppage could impact the entire automotive supply chain. On top of that, the wage hikes resulting from the related negotiations are set to weigh on the profit margins of the car companies.
Those kinds of risks may be why General Motors Co. shares fell 15% in the two months before the United Auto Workers began rolling work stoppages at some unionized plants in the Midwest on Friday, while Ford Motor Co. shares were down 16%.
“Investors like more certainty about what to expect,” said Matthew Tuttle, chief executive officer of Tuttle Capital Management, in an interview. “Both GM and Ford stocks have been savaged in anticipation and are both near some pretty strong support areas.”
Shares of Ford Motor Co. oscillated in a narrow range on Friday, before closing down by a penny. General Motors Co. closed up 0.9%. American depositary receipts for Stellantis NV, the parent of Chrysler, rose 2.2%, touching their highest level in more than a month.
Some strategists see the impact of the strikes as minimal in the longer run, especially as the industry navigates a much broader disruption amid the move toward electric cars.
“A strike is a temporary condition — even the immediate financial fallout from it is fleeting,” Bloomberg Intelligence analyst Kevin Tynan said in an interview. “Valuations are eventually going to hinge more on an automaker’s ability to grow revenue and profit contribution more with software than hardware, and their management of that transition.”
But others note that the pain isn’t guaranteed to be over for these stocks as uncertainties linger.
Jairam Nathan, an analyst with Daiwa Capital Markets, sees the wage increase to likely be settled around 25% to 30% over four years. He expects the UAW to give up on some demands such as additional time off and retirement benefits.
However, Nathan does not “see the ability of GM and Ford to pass on the cost increase through pricing, given already low affordability levels amid high interest rates.”
That could translate into weaker profits for the companies, Nathan said.
–With assistance from Matt Turner.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.