General Motors (GM) and Ford Motor are set to release their third-quarter earnings and future guidance this week amidst ongoing strikes and contract negotiations with the United Auto Workers (UAW) union. The outcome of these earnings could potentially impact the union’s argument regarding the companies’ ability to afford more concessions.
If the automakers exceed Wall Street’s expectations and demonstrate healthy profits, it could support the UAW’s claim that the companies can offer more concessions. This might prolong the work stoppages and contentious talks. On the other hand, if the companies present a bearish guidance or downplay the impact of UAW efforts, it could scare Wall Street and further dent their already discounted stock prices.
GM is expected to report third-quarter earnings of $1.88 per share on Tuesday, while Ford is estimated to report earnings of 45 cents per share on Thursday. However, investors are more interested in the effects of the strike and negotiations on the automakers’ near-term earnings and long-term plans.
The UAW has been leveraging earnings reports and executive commentary to support its collective bargaining efforts. If the automakers continue to generate profits in the third quarter, the UAW will likely argue that they should offer more favorable terms. Despite the record contracts from the automakers, the UAW believes that there is more to be achieved and has not ruled out further work stoppages.
GM has already reported approximately $200 million in lost production due to the work stoppage in September, and Ford and Stellantis have not yet disclosed their estimates of the strikes’ impact. According to JPMorgan, strike costs amounted to $145 million at Ford and $191 million at GM in terms of earnings before interest and taxes during the third quarter. These losses are expected to increase significantly in the fourth quarter.
The strike at Ford’s Kentucky plant, which produces the lucrative F-Series Super Duty pickup trucks, Ford Expedition, and Lincoln Navigator SUVs, has been particularly impactful. Its revenue at stake is approximately $25 billion annually. While analysts view the strike as a short-term issue, they acknowledge that it could affect automakers’ plans for electric vehicles and their long-term competitiveness compared to non-union automakers.
Wolfe Research analyst Rod Lache highlighted that labor costs for the Detroit automakers are expected to rise compared to their competitors. This could compound existing challenges and affect areas such as batteries, distribution, and design. Lache also mentioned concerns regarding the automakers’ ability to fully understand and adapt to the UAW’s new strategies, including bargaining in public and via social media.
In the midst of these negotiations, the automakers’ plans for electric vehicles have been impacted. Ford recently paused the construction of a $3.5 billion battery plant in Michigan until it is confident about its ability to competitively run the plant in light of the UAW talks. GM also announced a delay in the production of all-electric trucks at a Michigan plant to better manage capital investments and make the new EVs more profitable. These changes in plans suggest a potential connection to the contract negotiations.
In addition to earnings, Wall Street will be closely monitoring the automakers’ updates on electric vehicle progress and demand. Even Tesla CEO Elon Musk expressed caution regarding demand for EVs, citing concerns about the high interest rate environment. This reinforces the importance of monitoring market conditions and consumer affordability.
Overall, both the UAW and Wall Street will closely scrutinize the automakers’ earnings and future guidance, paying particular attention to the impact of the strike on their operations and their plans for electric vehicles. The outcome of these reports will significantly shape the ongoing negotiations and the perception of the companies’ financial health.