Earnings Report Preview | General Motors and Ford's Earnings Reports are Coming! The Impact of Strikes will soon be revealed.

According to the Zhongtong Finance APP, General Motors (GM.US) and Ford (F.US) will announce their third-quarter earnings and management's guidance on future performance this week. Currently, the wave of strikes in the US automotive industry and contract negotiations led by the United Auto Workers (UAW) are still ongoing. Many analysts see this as a difficult balance. If the performance of automakers is optimistic and exceeds Wall Street's expectations, it may strengthen the main argument of the union, which is that these companies can afford to make more concessions in a healthy profit situation, which may prolong strikes and controversial wage negotiations.

However, if these companies are too pessimistic about financial forecast data or the impact of the UAW strike, these factors may cause panic on Wall Street and further depress the already battered stock prices, thereby deeply affecting shareholder interests. Some analysts speculate that there may be many warning words in the comments on future performance.

According to analysts' expectations compiled by LSEG, analysts generally expect General Motors to have an earnings per share of $1.88 in the third quarter, and Ford to have an earnings per share of $0.45. In the same period last year, the figures were $2.25 and $0.30 respectively. It is expected that General Motors' Q3 revenue will be $43.3 billion, and Ford's revenue is expected to be $42.5 billion. In the same period last year, the figures were $42.1 billion and $37.5 billion respectively.

Stellantis (STLA.US), another of the three major Detroit automakers, will announce its quarterly earnings on October 31st Eastern Time.

The upcoming release of the financial reports of the three major automakers has attracted market attention to the impact of the strike. Although investors will certainly pay attention to the third-quarter performance, what is really worth paying attention to is the judgment of General Motors and Ford management on the negative impact of the UAW strike, as well as the comments of the executives of the two major automakers on short-term performance and long-term wage plans. The union will also closely monitor the latest financial data to assess the scale of the strike.

The UAW has been using the high salaries and related comments of executives, including General Motors CEO Mary Barra and Ford CEO Jim Farley, to promote the scale of their strikes and collective wage negotiations.

"When you are bargaining, you want to use every piece of favorable news to bring it out, bring it to the public, and bring it to the negotiating table," said Art Wheaton, a labor studies professor at Cornell University's Worker Institute. "If General Motors, Ford, and Stellantis are still profitable in the third quarter, the UAW will claim that the prices offered by the automakers during negotiations are too cheap and they should give more."UAW stated last Friday that although progress has been made in signing record-breaking contracts with automakers, there is still "more to fight for." However, UAW emphasized that there are no plans to expand the scale of the strike at the moment. Compared to the 2019 contracts, General Motors and Ford's recent proposals include a 23% salary increase during the agreement period, the restoration of cost-of-living adjustments, an increase in vacation days, and other improvements.

Nevertheless, the targeted strikes against General Motors and other major automakers starting from September 15 are expected to have a greater impact in the fourth quarter than in the previous three months. UAW has gradually expanded the scope of the strike to more assembly plants and distribution centers.

General Motors previously stated that the production losses caused by the September shutdown amounted to approximately $200 million. Ford and Stellantis have not disclosed any forecast data regarding the impact of the major strike. According to estimates by Wall Street's major bank, JPMorgan Chase, the strike costs for Ford and General Motors are estimated to be $145 million and $191 million, respectively, based on third-quarter pre-tax profits.

Following the strike at Ford's core factory, the Kentucky Truck Plant, initiated by the UAW, Ford's losses are expected to increase to $517 million in the fourth quarter, while General Motors' losses are projected to reach $507 million. Data shows that the annual revenue of the Kentucky plant is approximately $25 billion, making it the largest strike initiated by the union against Ford to date. The plant produces the F-Series Super Duty pickup trucks, as well as the Ford Expedition and Lincoln Navigator SUVs.

Although many analysts still consider the UAW strike to be a short-term issue, some analysts acknowledge that the high cost of reaching a concession agreement may impact the automakers' electric vehicle transformation plans and long-term competitiveness compared to other non-unionized automakers.

Rod Lache, an analyst at Wolfe Research, stated that based on the recent proposals, labor costs for Detroit automakers are expected to increase to $3,000 to $4,000 per vehicle, while competitors' costs generally range from $2,500 to $3,000.

"This could exacerbate other challenges OEMs face (such as competitiveness in batteries, distribution, and design). We are also concerned that OEMs may not fully appreciate the longer-term risks associated with the UAW's new strategy, including bargaining in public, social media, and populism," Lache stated in an investor report. "Automakers seem to be struggling to adapt to this reality."

Progress in the electric vehicle business remains a key focus

Traditional American automakers such as Ford and General Motors are facing a challenging process of transitioning to electric vehicles. Their electric vehicle businesses are still operating at a loss, and they are taking various measures to generate more profits from their traditional fuel vehicle businesses to support the development of electric vehicles.

Therefore, the strike initiated by UAW will inevitably have a significant negative impact on the electric vehicle businesses of General Motors and other major automakers. In the context of inflation, high interest rates, and a lack of infrastructure, the sales pace of electric vehicles from these three major automakers has been lower than expected.Ford announced last month that it would temporarily suspend the construction of a $3.5 billion battery factory in Michigan until the company has "sufficient confidence" in its ability to operate the facility during negotiations with the UAW.

General Motors this week announced that it will delay the production of its all-electric trucks at a factory in Michigan by at least one year in order to "better manage capital investments" and implement improvements to make the new electric vehicle business more profitable.

A spokesperson for General Motors stated that the planned changes are unrelated to the company's contract negotiations with the UAW. However, the contentious wage negotiations do involve electric vehicles, and the company's current contract proposal is expected to be more expensive than previous years.

Wall Street will closely monitor the latest developments in the electric vehicle business of the three major automakers and the level of consumer demand.

Even Tesla, the global leader in electric vehicles, expressed caution about electric vehicle sales in its recent earnings report. CEO Elon Musk expressed caution about the demand for electric vehicles, stating, "I am concerned about the high interest rate environment we are in. If interest rates stay high or even go higher, it will be much more difficult for people to buy cars."