The union firmly rejects the conditions set by the three major car manufacturers! Is a strike imminent as the "black swan" takes flight next week?

The salary negotiation in the US automotive industry has reached a deadlock, and analysts warn that a strike next week is "almost certain to happen."

On Friday, Shawn Fain, the president of the United Auto Workers (UAW), stated in a Facebook live stream that the union has rejected the conditions set by the "Big Three" automakers - General Motors, Ford, and Chrysler's parent company, Stellantis North America. If there is no further progress, the strike will take place as scheduled next Thursday.

Wall Street predicts that if 150,000 workers - equivalent to half of the US automotive manufacturing workforce - continue the strike for 10 days, it could result in economic losses of up to $5.6 billion (approximately 40.7 billion RMB).

Of particular concern is the upcoming FOMC meeting of the Federal Reserve on September 21. The potential risks of the strike to the US GDP this year may influence the committee's decision-making.

The negotiations will continue until this weekend, and there are still significant differences between the two sides. UAW's demands include a 46% wage increase over four years (with an immediate 20% increase this year), providing fixed-benefit pensions for all workers, and implementing a four-day workweek.

According to reports, the Big Three have conveyed their acceptable contract proposals to the UAW.

On Thursday, General Motors stated that it has offered a 10% wage increase to its employees and a one-time 3% bonus payment twice a year for the next four years.

Stellantis proposed a 14.5% wage increase for the first time on Friday.

Ford officials confirmed on Friday that they have raised the wage increase to 10% and will make a one-time payment.

However, these proposals are still below UAW's requirements.

Fain said that there has been progress in "certain aspects" of the negotiations:

We hope to reach an agreement. We are prepared to make a deal. But it must be an agreement that respects our sacrifices and contributions. If we don't see any results by Thursday night at 11:59 PM... if necessary, we will hit these three companies.

During the live stream, Fain had a trash can behind him with the words "Proposals from the Big Three" written on it. He told the viewers watching the live stream that the discarded papers in the trash can were the wage increase proposals previously presented by the Big Three.

Fain said that UAW wants a "significant increase" in retiree compensation, but the Big Three rejected this proposal:

This is outrageous. Retirees have been completely left out of the latest benefits.

As the deadline approaches and no proposal meets the union's demands, John Murphy, a senior automotive analyst at Bank of America Securities, warned clients on Friday:

A strike next week is almost certain to happen.

The word on Wall Street is that UAW may soon counteroffer the Big Three's bid.

We still believe that a strike is likely to occur after the main contract expires next Thursday.

What will happen after the strike?

Murphy predicts that if a strike occurs next Thursday, negative news may weigh on the stocks of automakers:

Once the contract is finalized, negotiations will result in a 25-30% increase in labor costs over the next four years, including substantial cash signing bonuses and adjustments to other benefits.

If this happens, it may push some stocks related to the overall industry down, but our discussions with investors and the valuations of General Motors and Ford indicate that these stocks largely reflect the risk of a major strike.

The UAW strike against General Motors in 2019 lasted for 6 weeks, so we believe that a strike of one to two months seems to be a possible outcome here .

Since the strike news fermented on July 31, the stock prices of the three giants have fallen by 9% to 15%.

Is the US economy "bracing for a storm"?

Wall Street News has previously reported that the automotive industry (including foreign-funded enterprises operating in the United States) accounts for about 3% of the US GDP (Gross Domestic Product). As one of the long-standing pillar industries, a strike by half of the workers in the automotive industry will not only cause the "Big Three" to suffer huge losses, but also affect the future economic performance of the United States for a period of time.

If the UAW decides to launch a strike, the production of the "Big Three" may have to come to a halt, resulting in billions of dollars in losses.

The Anderson Economic Group (AEG), a labor strike research think tank, estimates that a 10-day strike will result in a total wage loss of $859 million for the three major automakers, with losses of $989 million for the "Big Three," including $380 million for General Motors, $325 million for Ford, and $285 million for Stellantis.

Deutsche Bank estimated in a previous analysis that the strike would result in production losses of $400 million to $500 million per week for each of the giants.

An analysis by AEG shows that the strike by nearly 150,000 UAW members at General Motors, Ford, and Stellantis will result in an economic loss of up to $5.6 billion after 10 days.The CEO, Patrick Anderson, stated:

Even a brief strike can have an impact on the economy of Michigan and the entire United States.

During the final round of labor negotiations in 2019, the UAW chose General Motors as their primary negotiation target. However, the negotiations ultimately broke down, leading to a nationwide strike by nearly 50,000 General Motors workers that lasted for 40 days.

According to General Motors, this strike resulted in a loss of $3.6 billion for the company that year.

It is worth mentioning that the inventory levels of American automakers are much lower than they were four years ago. Coupled with the fact that the automotive industry has not fully recovered from the supply chain issues caused by the pandemic, this strike may have more severe consequences for the automotive industry.