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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowFrom generous pay and benefits to stronger job security, the United Auto Workers union won significant concessions in tentative settlements that have ended their strikes against Detroit’s three automakers.
Now, General Motors, Ford and Stellantis are facing sharply higher labor costs, estimated by some analysts at exceeding $1 billion per year, per company. The automakers will try to absorb those cost increases through expense reductions and efficiencies while still aiming to post strong enough profits to please Wall Street.
In addition, analysts say, the companies will likely try to offset their cost increases by raising vehicle prices for consumers. How much they’ll be able to do so, though, remains unclear. American auto buyers are already facing enormous price run-ups since the pandemic: The average new-car price has soared roughly 25% since the pandemic struck three years ago.
Customers might assume that nonunion automakers, like Toyota, Tesla or Hyundai-Kia, will now be able to price their vehicles well below what the Detroit automakers can. But history shows that the nonunion companies will eventually feel compelled to raise their factory wages, too, in their effort to ward off the UAW’s efforts to unionize their factories. As their own labor costs rise, they, too, would likely impose price increases.
At the same time, the breadth of competition means that while GM, Ford and Stellantis will seek to raise vehicle prices, it might prove difficult to make significant price hikes stick.
“I don’t think consumers will necessarily readily absorb all the price increases,” said Jonathan Smoke, chief economist for Cox Automotive. “We are bound to see continued growth in discounting, which has just started to recover as supplies improve.”
If approved by 146,000 union members, the settlements that ended the strikes mean that automakers will raise top assembly plant worker pay by more than 30% to around $42 an hour by the time new contracts end in April of 2028. Less-senior workers and temporary hires will receive much bigger increases.
Ford estimates that the contract will raise labor costs by $850 to $900 per vehicle. All three automakers said they have taken steps to pare costs and become more efficient, having known for months that they would have to begin raising worker pay. But they also face huge capital expenses to develop and build electric vehicles as the world transitions from gasoline to battery power.
“When the dust settles from this UAW debacle, the Detroit auto stalwarts find themselves with a bigger cost profile with competition increasing,” said Dan Ives, an analyst at Wedbush.
Natalie Knight, the chief financial officer of Stellantis, the parent company of Chrysler, Jeep and Ram, said her company has already pulled out of two auto shows in the United States to save on expenses.
“You can imagine that is not the end of our activities,” Knight said Tuesday. “That’s an issue for all of our business and something we are working very, very consciously on to see how do we mitigate those costs.”
Even before the strikes, auto prices were rising as a pandemic-related computer chip shortage hobbled factories and made new vehicles scarce. The average sale price peaked in December of last year at nearly $50,000.
This year, computer chips started flowing before the strike, and companies were making more vehicles. Supplies increased, and by September, prices dropped to just under $48,000, said Smoke, the Cox economist.
As factories crank back up after the strikes, Smoke foresees pressure on the companies to keep prices affordable, especially with auto loan rates around 10% driving up monthly payments. Discounts, he said, will likely have to come out of the automakers’ profits.
Detroit’s automakers, Smoke noted, have been jettisoning smaller, lower-cost vehicles for years and instead ramping up production of higher-profit trucks and SUVs that can cover their higher cost of labor.
At present, he said, U.S. auto dealers have more than 2.4 million vehicles on their lots, the highest supply since the spring of 2021. That means that competition for buyers is intensifying as pent-up demand from the pandemic wanes, making it difficult for any automaker to raise prices.
During the contract talks, UAW President Shawn Fain stressed that the Detroit automakers were making billions in profits and needed to share some of the profits with workers, who for years gave up pay raises and other benefits to help the automakers survive the aftermath of the Great Recession. Worker wages and benefits, Fain argued, make up only about 4% to 5% of a vehicle’s costs and can be easily absorbed by the companies.
Ford, GM and Stellantis combined posted net income of $24.5 billion during the first nine months of the year. (That doesn’t include profits from Stellantis, which reports them only twice a year.) But if the Detroit companies report lower income, Wall Street will register its disappointment, and stock prices could fall.
Another force that could keep prices up, though, is wages for nonunion competitors. Art Wheaton, director of labor studies at Cornell University, said history has shown that foreign automakers with U.S. factories have raised wages after UAW contract agreements to try to prevent the union from unionizing their plants.
Fain has said that organizing at those nonunion sites will be a priority for the UAW and that he expects to negotiate with more than just Detroit companies in the next contract.
Already Toyota has increased factory wages, though a spokesman wouldn’t say when and by how much. Wheaton said nonunion automakers, including Tesla, will have to get in the high $30s per hour to make union membership less attractive to their workforces.
“The rising tide lifts all boats,” Wheaton said. “You either raise your labor costs to meet what the UAW is getting or you risk the unionization drive.”
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“UAW President Shawn Fain stressed that the Detroit automakers were making billions in profits” – keywords are [were making]. Increasing the prices? Good luck with that.
This could very well be the beginning of the end for the Big 3. I hope not but time will tell.
Nah. $850-900 on a $48,000 vehicle is less than 2%.
The article points out elsewhere that prices escalated 25% over the past 3 years…and people are still buying cars. 2% isn’t enough to kill the Big 3.
Profit at GM in 2022 was $14.5 billion. After all of that hand-wringing, the fact that the labor costs have increased by $1 billion really shows that the Big Three were acting in bad faith with their “the company could be doomed” rhetoric. They will be fine.
The price increases will have to be greater each year than for the
non union auto plants.
Add the rising interest rates on top of the projected price increases.
There’s also the fact that the EV market is still not viable.
Ford is losing $ 60,000 dollars per EV unit manufacturered.
Jobs will be lost.
The non-union companies are likely to raise wages and benefits to prevent labor bleed-off to their competitors. Yeah, the EV market is going to take a while. You don’t make a profit on something that has such a big capex budget and will take years to scale in the first 1-2 years of sales.
A R–
There may indeed be some labor bleed-off away from Japanese and German and Korean companies to the Big Three. But that’s presuming the Big Three can ride boldly onto the sunset through the aftermath of these wage hikes, raising prices on their vehicles without causing demand to flag. What if they don’t? What if, as basic laws of economics would tell us, demand continues to decline as they raise the price of a Ford Focus or Chevy Malibu? Ford has still lost half its US market share since 2000, and it’s the only one of the three that didn’t get bail-outs
Demand was flagging on American vehicles even when their prices were stagnant. And American vehicles notoriously depreciate faster. And, as someone else noted, the Big Three have a sliver of a market share in Europe. Might be better in Latin America, I don’t know, but I don’t imagine there are many foreign markets where GM/Chrysler/Ford have as big of a share as Volkswagen does in the US. Maybe none.
This is a company turning out increasingly luxe working conditions for its manufacturing force without compromising on the wages for exec-level admin. This is to be expected, but generally it can only work well if the product is growing in demand. In many parts of the country, you can go 20 cars before you see a Ford or Chevy on the road.
Lauren, have you been inside a Big 3 (or any mass production) factory? “Luxe” is not a good descriptor of life on the line.
Chris B–
It probably isn’t Alpha Bet or Twitter (under Dorsey–not Musk), but it’s a far cry from conditions under Henry Ford.
They get to eat meals sitting down and they don’t resort to tourniquets when there’s an injury on the assembly line. It might be slightly more grueling than a Starbucks barista, but baristas aren’t making $42 an hour. In a state like Michigan, $42/hour is well above the median household income. HOUSEHOLD, not individual.
The three largest automakers in the world are Japanese (Toyota), German (Volkswagen), and Korean (Hyundai). Stellantis is only fourth because of the Italian/American/French merger.
A majority of American vehicles are being made in other developing countries. Situations like this are a major reason why.
Or—they could cut admin expenses and stockholder premiums.
You really don’t understand business or economics
But but…the stock buybacks! The executive bonuses! Whatever shall they do?!
Why own stock then in GM???
Remember, the profits should go to the shareholders. They are
the ones risking their investments ( usually invested in retirement accounts ).
Keith, there is basically no risk in owning GM stock because the company is “too big to fail”.
The profits should go to the employees and their health and retirement. They are the ones working day in and day out to make money for the company, not the shareholders.
Under your pretense, that profits should only go to the employees,
then why by stock in a company.
See what happens when people start pulling their money out. The company
will collapse.
The profits belong to the shareholders. They are the ones taking the risk.
Otherwise it makes no sense to buy stock in a company.
Good luck raising capital.
The non union plants do just fine without the entitlement mentality of its
workers demanding the profits. In fact they are more productive ( and
not by a little ) and more profitable.
You’re assuming a false narrative where it’s either pay or workers or pay your shareholders. It’s about priorities. Pay your workers just compensation first, THEN address the shareholders. Profit is what is left over after expenses, it’s not an excuse to screw over your employees to make a faster buck. I’m fact, businesses have done that so much that it’s why we have labor laws and labor rights. Employees are 100% entitled to unionize and negotiate for their salaries and benefits, just like corporations can develop partnerships and bargain for deals on raw materials, sales, and cross-promotions. Deal with it.
Also I hope the non-union plants wake up and smell the roses.
UNIONIZE!
If you can’t raise capital and also pay your workers fair wages and benefits, then you don’t have a good business model and don’t deserve to survive as a company. Full stop.
A R–
Annnnd…if you’re too stupidly possessed by ideology to see how there’s no definition of “fair” that will ever satisfy the permanently-aggrieved, then you deserve to go out of business when you think you can pay burger-flippers $15 an hour, charge $24 for a Big Mac, and still expect customers to flock to your product.
More luxury beliefs from our utterly out-of-touch bourgeois who deserve all the urban misery they keep voting for.