General Motors Co. and Ford Motor Co. were battered last week by the prospect of crippling labor strikes and rising costs as GM had the worst week it has seen in almost five months, and Ford closed at the lowest price it has seen since early June.
As news came in sparking fears that labor costs going forward will begin surging, shares of GM and Ford plummeted. A report on Tuesday had suggested that talks both automakers were undergoing with their labor union, the United Auto Workers (UAW) regarding new contract terms, may end up costing each of the automakers over $80 billion in concessions to the union.
Adding to investor anxiety was a report by Union Parcel Service, that it would be lowering its profit forecast for the year due to the increase in costs it would be enduring due to the agreement it just reached with the International Brotherhood of Teamsters.
In an interview, Arthur Hogan, chief market strategist at B. Riley Wealth, said, “The recent success of the Teamsters contract negotiations has cast a spotlight on the current environment where Labor has the upper hand over capital in the post lockdown economy.”
On Friday, GM shares fell 0.8%, bringing the drop for the week to 7.3%, which is the biggest weekly decline since March 17th. Ford dropped 5.8%, hitting its lowest level since June 1st.
Analysts and strategists are reporting that investors have begun to fear that unions are enjoying the advantage in contract negotiations lately, and that means companies are subject to production disruptions, as well as higher costs.
In a note, Wells Fargo analyst Colin Langan wrote, “The expiring UAW contract on Sept. 14 is the most imminent risk to GM & Ford,” He added that the risk of a strike is elevated, due to the “audacious demands” of the unions. He noted that if all of the UAW’s demands were met, wages for workers would rise from their present $66 per hour to roughly $136 per hour.
Both automakers have had a rough year so far, but things have taken a turn for the worse over the past month, as concerns have grown over their electric vehicle programs’ lack of progress, as well as the effect on car prices as inflation falls, and a growing nervousness over negotiations with the unions. Those factors have all caused stocks to fall by a minimum of 15% over the past month.
Matthew Tuttle, chief investment officer at Tuttle Capital Management, has warned that even though the stocks have already fallen on the news of these factors, it may not be the end of the declines. He said, “Both stocks are not far from important support at the May highs, and if that breaks then there could be a lot lower to go.”
