Due to the failure of negotiations between the United Auto Workers (UAW) and the three major American automakers to reach a labor agreement before the deadline, the UAW initiated a large-scale strike in several states across the United States on September 15. This marks the first time in UAW's history that it has simultaneously launched a strike against Ford, General Motors, and Stellantis, being one of the strongest labor strikes in recent years in the U.S.
The strike began initially at three plants, including the General Motors factory in Wentzville, Missouri (which primarily assembles midsize pickups), the Stellantis factory in Toledo, Ohio (which primarily assembles Jeep vehicles), and the Ford factory in Wayne, Michigan (which primarily assembles Ford Broncos), involving 12,700 workers. Shawn Fain, the newly appointed President of the UAW, stated that if negotiations do not progress, the strike may expand further in the next one to two weeks.
UAW's Demands
It is understood that the UAW has approximately 146,000 members within the three major American automakers, which accounts for 56% of the total workforce in the U.S. automotive manufacturing industry. UAW union workers renegotiate contracts with the three major automakers in Detroit every four years, and the current labor agreement expired on September 14.
The last round of negotiations took place in 2019, during which, due to difficulties in negotiations with the "Big Three", the UAW initiated a 40-day strike against General Motors, with nearly 50,000 workers participating. This strike resulted in over USD 3.6 billion in losses for the carmaker. Ultimately, it concluded with a compromise from General Motors, and the UAW subsequently reached favorable labor agreements with Ford and Stellantis.
The negotiations for the new contract in 2023 began in July and primarily involved proposals related to compensation, wage security, and pension benefits. Due to various real-world factors and the hawkish stance of the newly appointed UAW President Shawn Fain, the negotiations did not progress smoothly. UAW demanded a substantial 40% salary increase for regular members over the course of the four-year contract. However, after several rounds of proposals, the conditions offered by the Big Three automakers were as follows: Ford offered a 20% raise, General Motors proposed an 18% raise, and Stellantis suggested a 17.5% raise, all of which fell short of UAW's 40% salary increase demand. Additionally, UAW requested the restoration of fixed benefit pensions for all workers, the elimination of the two-tier wage system, the conversion of all temporary workers into permanent employees, a 32-hour workweek (four days a week), and retiree healthcare. All these demands were rejected by the automakers.
From the perspective of the automakers, UAW's series of demands appeared to be excessive, and when the automakers attempted to negotiate more conservatively, UAW under the leadership of Fain remained unyielding, displaying a very firm stance. Fain believed that the proposals from the three automakers did not adequately reflect the substantial profits generated by the workers for the companies. In the face of high inflation, workers needed higher wages to cope with the rising cost of living. As for the demand for a 40% raise, he reasoned that the salaries of the top executives of the Big Three automakers had increased by an average of 40% over the past four years, and workers' wage increases should also keep pace. Currently, the starting salary for workers at the Big Three automakers is approximately USD 18 per hour, with the highest reaching USD 32 per hour. If UAW succeeds in securing a 40% raise, the starting wage for workers would exceed USD 25 per hour.
The Burdens of the Automakers
For the automakers, fully accepting UAW's demands is nearly impossible. According to insiders, the current labor cost for Ford, General Motors, and Stellantis is USD 64 per hour, which is already higher than the USD 55 per hour labor cost for Asian and European automakers at non-union assembly plants in the U.S. Tesla's labor cost in the country is even lower, ranging from USD 45 to USD 50 per hour. According to estimates from the automakers, UAW's series of demands would significantly increase direct labor costs from the current USD 64 per hour to over USD 150 per hour. This would result in an annual labor cost increase of USD 45 billion to USD 80 billion for the Big Three, posing a threat to their future viability.
Marick Masters, a professor at Wayne State University, pointed out that such a staggering cost increase could have catastrophic consequences. Moreover, in order to advance their transformation towards electrification and smart technologies, automakers have to invest heavily, and cost-cutting is already a pressing concern. It is highly unlikely they would be willing to significantly increase costs.
In fact, on September 14, General Motors proposed a new contract, including a 20% pay raise, increased vacation days, better benefits for retirees, and other perks, in an attempt to avert a UAW strike. General Motors CEO Mary Barra described the proposal as "compelling and unprecedented". Ford also recently put forward a new proposal, including pay raises, the elimination of the two-tier wage system, inflation protection, five weeks of paid vacation, 17 paid days off, increased retirement benefits, and continued investment in U.S. factories, among other benefits. However, it seems that the union is not satisfied with these offers.
In response, Ford CEO Jim Farley stated on September 14 that UAW's proposal for a 40% pay increase, shortened workweek, and increased new pension benefits could lead the company to bankruptcy. "You (i.e., UAW)want us to choose bankruptcy over supporting our workers",Farley said.
Gerald Johnson, Executive Vice President of Global Manufacturing at General Motors, also stated in a video that UAW's wage and benefit proposals would result in the company losing USD 100 billion, "more than twice the value of all of General Motors and absolutely impossible to absorb".
It is worth noting that, unlike General Motors, Ford has maintained a very close relationship with UAW leadership in the past. This is one of the key reasons why General Motors experienced a strike in 2019 rather than Ford. However, UAW leadership has gone through a series of disruptions, including corruption scandals. Since Shawn Fain took office as the new president in March of this year, he immediately adopted a tough stance toward Detroit's three automakers. The series of demands he subsequently made exceeded the companies' expectations and he showed no willingness to compromise. After more than two months of negotiations with no agreement reached, it ultimately led to the large-scale strike.
Cumulative Losses in the Past 10 Days May Exceed USD 5 Billion
According to Deutsche Bank's calculations, this strike will severely impact the American automotive industry's production capacity, causing economic losses of approximately USD 400 - USD 500 million per week for the three major carmakers. At the same time, the enormous ripple effect could continue to affect the entire U.S. economy. According to data from the U.S. Bureau of Labor Statistics, the American automotive industry, including parts suppliers, employs nearly one million people. CFRA analyst Garrett pointed out that the most optimistic estimates suggest that, in terms of strike costs, cumulative losses in the past ten days may exceed USD 5 billion. The automotive industry is the largest manufacturing sector in the U.S., and if this situation continues into October and November, third-quarter economic growth will definitely be affected, with an even greater impact in the fourth quarter.
However, Wedbush analyst Daniel Ives stated that in this battle of power between the UAW against General Motors and Ford, Tesla is the clear winner. He also mentioned that Detroit automakers could face higher costs and complexities in the future, while Tesla and other non-union automakers will not encounter these issues when expanding electric vehicle production. Elon Musk, who observes from the sidelines, even tweeted, " the UAW stole millions from workers, whereas Tesla has made many workers millionaires (via stock grants). Subtle, but important difference".
The strike is one that the Biden administration cannot take lightly. The timing of the strike coincides with Joe Biden's bid for re-election, giving it a significant political undertone. In order to secure votes, Biden has aligned himself with the union's side. "Auto companies have seen record profits including the last few years because of the extraordinary skill and sacrifices of the UAW workers," Biden said. "Those record profits have not been shared fairly, in my view, with the workers". Biden called on American automakers to offer better deals. While he has spoken on this matter more than once before, it seems to have had little effect. Currently, the Biden administration is discussing emergency assistance measures to prevent undue impact on the upstream small and medium-sized enterprises associated with the affected auto companies.
From the current news reports, it appears that experts, scholars in society, and the American media, while each having their own areas of focus, have not pinpointed the true essence and background of the situation. American unions have a tradition of staging strikes, and in the past, they were a genuinely significant political force because the U.S. was still a manufacturing power, and the power of the working class was substantial. Since then, the country has undergone significant changes, transitioning into a service-based economy, with the service sector and consumption becoming the mainstay of the American economy. The influence of the working class has waned.
The issue, in fact, lies right at this point. Even though the remaining "American workers" may not be as numerous as before, they still constitute an important social force. This crucial working-class force, now under the impact of figures like Elon Musk and the rise of electric vehicles, and pressured by the overly progressive climate policies of the Democratic Party government, has inevitably been sacrificed. They can only rise up to fight, even if it means going all out. It is a situation where they have nothing to lose, and this is irreversible.
Interestingly, on the surface, it may seem that the three major American automotive giants are negotiating with striking workers and both appear to have oppositional views. However, in reality, this marks the first time in U.S. history when the three automotive giants and the workers share a "common stance" and "common interests" in a major strike. The reason behind this is the significantly lower number of workers required for the production of electric vehicles compared to traditional automobiles. A few years ago, during a speech on the IAEE podcast, I warned that this situation would have a profound impact. The development of new energy vehicles would lead to significant job losses in the traditional automotive manufacturing sector. The manufacturing of new energy vehicles requires less than half the workforce compared to traditional car production. No country or government can withstand such an impact. Therefore, as governments around the world formulate their climate policies, they should avoid being overly radical or idealistic, as well as harboring the illusion of gaining political capital from it for elections. In reality, such a wave of unemployment on this scale could lead to significant social unrest.
This unfortunate warning has finally become a reality. The Democratic Party government finds it challenging to extricate itself from this situation because they have indeed made a significant political error. They invested too much political capital in a highly technical issue, leading to a situation where they now struggle to deal with the striking workers, leaving them in a difficult and embarrassing position. As for Musk, he may still be relatively optimistic at the moment, but I believe it will not be long before he faces significant legal and societal pressures. Musk seized a golden opportunity, but he appears overly optimistic about the future. Those who continuously sing Tesla's praises will also soon face the onslaught of changing tides.
As for President Biden and the Democratic Party, they have a large team of experts, but they have all misjudged the situation and trends. They seem unaware that science can also have negative consequences. Therefore, the Democratic Party losing the support of a large portion of the working class in an election year is entirely their own doing. It is the result of their mistakes and their overconfidence.
