UAW strike would jeopardize financial strategies of GM and Ford

General Motors and ford have drawn up ambitious plans to spend billions on developing new electric vehicles while returning capital to investors, all financed by the strong profits of combustion trucks and SUVs.

However, the rising costs of the United Auto Workers (UAW) union strikes and eventual contract agreements are putting these plans in jeopardy, analysts say.

“Reduced capital spending, delayed EV goals, greater cost sharing and other changes to the company’s ‘portfolio’ could be on the horizon,” Morgan Stanley analyst Adam Jonas told clients in an Oct. 12 note.

GM will present its third quarter results on October 24 and Ford, two days later. GM already anticipated a $200 million hit to third-quarter profits from strike-related costs.

Millionaires loses

The strikes have cost GM and Ford more than $500 million, JPMorgan analyst Ryan Brinkman estimated in a note Monday. Ford is losing $44 million a day, compared to GM’s $21 million, according to his estimates.

Ford suffered a severe blow on October 11, when UAW President Shawn Fain ordered a walkout at the Kentucky truck assembly plant, the most profitable in the world. Kentucky Truck generates $25 billion in revenue a year, or $48,000 a minute, as Fain said in a videotaped speech Friday.

After a top Ford executive said the firm had reached the limit of what it could spend on a new union contract, Fain replied: “Go get the big checkbook. The one Ford uses when it wants to spend millions on company executives or on gifts to Wall Street”.

Ford spent $3.8 billion on dividends through the first half of this year, according to its most recent financial report. The company told investors in May that it planned to distribute 40% to 50% of free cash flow to investors each year through dividends and share buybacks.

Less investment

Fain warned of a 1,500% increase in money spent on share buybacks by “Detroit Three” over the past four years to argue that firms can afford substantial pay increases in the UAW.

Both GM and Ford have already reduced planned investments in electric vehicle and battery plants.

In July, GM cut its planned spending this year on electric cars and battery plants to between $11 billion and $12 billion.

The company had previously said it could spend up to $13 billion this year developing electric vehicles and battery plants. The company also raised its cost reduction target by $1 billion through next year.

Ford this month halted the project to build a $3.5 billion battery plant in Marshall, Michigan. The automaker’s chief executive, Jim Farley, warned that there could be further cuts in future product investments if a “bad agreement” with UAW.

Shares of GM and Ford have suffered sharp declines since July as the standoff with the UAW intensified. On Friday, GM shares traded near their 52-week low.