The International Union of United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) has reached a tentative deal with Ford after a 41-day concurrent strike against Detroit’s Big Three automakers. Significant strategic cutbacks related to electric vehicle (EV) investment come as consumer demand weakens and cost-cutting measures take hold throughout the industry. Inventory beats consensus estimates, an encouraging data point for the automotive industry through the UAW's strike.  

In regulatory news, the Biden Administration’s proposed hikes to fuel economy standards requirements could cost Detroit’s Big Three more than $10 billion in fines through 2032. Ford announced another significant recall on 35,000 Mustang Mach-E vehicles related to its extended-range battery. Toyota announced a recall on nearly one million Highlander crossover models related to an issue with front bumper security.

Additional October insights are included below.

Financial Performance

September U.S. light vehicle sales increased approximately 14 percent year over year, beating Bloomberg consensus estimates. Vehicle mix continues to remain near record levels, trending toward large vehicles as light truck sales are up more than 14 percent year to date. Average transaction prices remain steady but elevated compared to this time last year. Expectations for full year 2023 remain moderate based on continuously growing production cuts and an increasingly unstable near-term macroeconomic environment, but signs continue to point toward a steeper recovery in 2024.

Industry Update

September inventory levels ended at 2.06 million units, a 137,000 unit increase from last month. Days’ supply (DS) closed at 42, approximately 3 percent below the five-year average and a slight improvement over the last several months. Inventory at Detroit’s Big Three increased month over month, driven by Ford and Stellantis ramping up production at facilities that were not shut down by the UAW strike.

Industry Focus — An Update on the UAW’s Negotiations with Detroit’s Big Three

After a 41-day concurrent strike against Detroit’s Big Three, the UAW and Ford reached a tentative agreement on a new four-year labor contract that brought the union’s strike against the automaker to an end. The UAW remains on strike against GM and Stellantis, where negotiations are ongoing.

The agreement comes just over a week after the UAW expanded its stand-up strike against both Ford and GM, targeting some of the automakers’ most profitable assembly lines that focused on heavy duty trucks and other large vehicles. Ford, which saw as many as 16,000 of its 57,000 UAW members on strike, was hit the hardest of Detroit’s Big Three.

Recapping a ‘stunning victory’ for the UAW

With record wage increases and the restoration of significant benefits lost during the Great Recession, the tentative agreement with Ford has been hailed as a significant win for UAW president Shawn Fain and UAW Vice President Chuck Browning, who led the negotiations with the automaker. Full details of the terms of the deal remain unknown, but major points for Ford’s tentative agreement — compared to the UAW’s demands and the other automakers latest offers — are below:

Financial Impact of Strike Becoming Clearer

In their third quarter earnings releases, both GM and Ford announced significant losses related to the UAW’s strike and withdrew guidance for the full year.

• Ford estimated the strike would cost $1.3 billion total in 2023, including $100 million in the third quarter and $1.2 billion in the fourth quarter. On a total revenue of $44 billion in the third quarter, Ford reported EBIT of $2.2 billion, a 22 percent increase compared to last year. The automaker estimated it would cancel production of nearly 80,000 vehicles.
• In its October 24 earnings announcement, GM estimated the strike has cost nearly $800 million at a $200 million per week run rate so far. The company posted net income of just over $3 billion on revenue of $44 billion, beating consensus estimates. In direct response to the earnings announcement, the UAW announced a strike against GM’s Arlington, Texas assembly where the Chevrolet Suburban and Cadillac Escalade are manufactured. The Arlington facility is considered one of the most profitable manufacturing facilities in the world.
• Ford also provided some forward-looking guidance on the impact of its tentative agreement with the UAW, noting it estimates the deal would increase labor costs by $850 to $900 per vehicle.

With the announcement of a tentative agreement, the UAW called off its strike against Ford. The company announced it would slowly resume production at the impacted facilities. 

A new UAW offer on the table to GM and Stellantis as layoffs mount

The UAW presented its first true counteroffer since early September to both GM and Stellantis after announcing its tentative agreement with Ford. Wage increases and full restoration of pre-Great Recession COLA benefits remain key issues for the union.

With new strike locations added in the last 10 days for both GM (Arlington) and Stellantis (Sterling Heights Ram assembly), operational and financial pressures continue to mount. Just over 29,000 UAW employees remain on strike across GM, Stellantis and other automotive suppliers, while layoffs are approaching the eight thousand employee mark:

Given a significant portion of the supplier population is privately owned, it is likely the number of supplier-driven layoffs is even higher than the reported figure through Automotive News.

Suppliers continue to struggle amidst broader uncertainty

Suppliers perhaps face the toughest long-term consequences of the UAW’s continued strike. Automotive suppliers have cited labor retention as a critical issue for several years, and many fear their employees will not come back after temporary layoffs. With margins already under pressure from dual-track programs supporting EV and internal combustion engine vehicles concurrently, the uphill battle looks to get even steeper with the recent shutdown of GM’s Arlington assembly and Stellantis’ Sterling Heights assembly.

A recent Anderson Economic Group report estimates that suppliers have lost nearly $3 billion in wages and earnings since the start of the UAW strike. Seating supplier Lear Corp., while reporting improved sales and margins, indicated it lost $170 million in the third quarter because of the UAW strike. With Ford resuming production, Lear estimates it will continue to lose $35 million per week.

Further complicating operational issues for suppliers is the seemingly delicate balance that EV programs hang in with automakers. Mounting cost pressures for original equipment manufacturers (OEMs) have resulted in program pauses or slowdowns, which have already trickled downstream to suppliers. Lear had previously provided EV revenue targets of $1.3 billion, bolstered by significant business from GM, that the company has had to significantly offset with new business from Chinese EV manufacturer BYD.

EV development slowing significantly, and not just with Detroit’s Big Three

The mounting financial pressures caused by the UAW’s strike have had a significant impact on Detroit’s Big Three’s plans for EV development. To date, plans for several billion dollars' worth of development related to EVs have been scrapped or delayed:

• Ford announced in late September it would indefinitely pause plans for a $3.5 billion battery plant in Marshall, Michigan. With a tentative labor contract in place, the automaker has still indicated it is reviewing plans for the facility but has not committed to resuming production.
• Stellantis announced it would not be attending the Consumer Electronics Show (CES) this year as a cost-cutting and capital preservation measure, directly attributed to the ongoing strike, is put in place. In prior years, the automaker has used CES as a launch platform for its most prominent EV concepts.
• GM and Honda announced they would be abandoning a $5 billion effort to develop a series of low-cost electric vehicles starting in 2027, citing cost-cutting efforts as a result of the ongoing strike. The joint venture would have used GM’s Ultium battery to create vehicles that cost less than $30,000 for consumers.

Not all EV-related cutbacks are directly tied to the UAW strike, and not all are driven by Detroit’s Big Three. Recent concerns about waning consumer demand for EVs have driven a number of cuts to investment and production plans for major automakers:

• Tesla announced on its third quarter earnings call it would delay the ramp up of its Mexico factory, citing the cost of borrowing for consumers as a driver for waning EV demand in spite of recent price cuts for its vehicles.
• GM announced it would delay production of electric pickup trucks at its Orion assembly plant until 2025. The plant will be idled at the end of this year and the company had planned a $4 billion conversion project for the plant to support EV pickup production.
• GM also announced it would be scaling back on its goal to build 400,000 EVs through mid-2024, without announcing a new target.
• Ford announced it would temporarily cut a shift at its Rouge EV plant in Michigan where the F-150 Lightning is built. The cut affects more than 700 jobs and there are no plans for when the shift will resume.

The demand environment puts automakers in a precarious position: with billions of dollars already invested and to be invested in the immediate future, as GM will have invested $35 billion through the end of 2025, legacy automakers are at odds with government-mandated emissions standards that require them to produce a certain number of EVs.

Regulatory Landscape

Potential Fuel Standards Fines for Detroit's Big Three: The Biden Administration’s recent proposal to hike fuel economy standards through 20323 would result in fines of $6.5 billion for GM, $3 billion for Stellantis and $1 billion for Ford. A letter from the American Automotive Policy Council, representing the automakers, described the penalties for not meeting requirements as ‘alarming’ and said the plan’s ‘petroleum equivalency factor’ would result in ‘disproportionately higher compliance costs’ for U.S. automakers.

Ford Mach-E Recall: Ford announced it is recalling 35,000 Mach-E vehicles equipped with extended-range batteries. The recall comes after the National Highway Traffic Safety Administration launched an investigation into Ford’s 2022 recall of the same model, which has seen recent complaints related to battery failures. Ford has now issued 46 recalls across 4.9 million vehicles this year, the most of any automaker.  

Toyota Highlander Recall: Toyota will recall nearly 1 million Highlander crossover vehicles globally due to an issue that causes the front bumper to come loose. The recall affects model years 2020 to 2023 and more than 750,000 vehicles in the United States. Toyota has now issued 10 recalls across 640,000 vehicles so far this year.

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