What Wall Street needs to know about UAW talks, a potential strike and what it could all cost

DETROIT — The Reader and adviser of Omaha is cutting exposure to the U.S. automotive industry amid union negotiations — potentially for good reason.

Warren Buffett’s Berkshire Hathaway this week denoted it nearly halved its stake in General Motors in the second quarter. While the firm didn’t disclose its reasoning, the year-end is supposed to be a challenging one for the U.S. automotive industry amid contentious contract talks between the United Auto Workers union and GM, Ford Motor and Stellantis.

The talks, which take into account nearly 150,000 U.S. autoworkers, could cost the automakers billions of dollars in additional labor costs, work stoppages or, in a worst-case routine, both.

The new UAW leadership team has dubbed these talks the union’s “defining moment.” President Shawn Fain has already deployed punitive messaging and a few theatrics, including throwing contract proposals by Stellantis in a trash bin, and this late in the process there’s been spot to no talk about “give and take” or “win-win” deals.

“They’re ready to strike if a deal does not happen,” judged Melissa Atkins, a labor and employment partner at Obermayer. “Going in with that mindset, I anticipate it being pure contentious … and just given the history, there probably will be a strike.”

Aggressive efforts by the union are great for pull together labor and the embattled UAW, which is attempting to regain its footing after a yearslong federal corruption probe landed not too top leaders in prison for bribery, embezzlement and other crimes — but not for the companies or their shareholders.

Here are the numbers investors should remember ahead of the expiration date for current contracts between the Detroit automakers and UAW at 11:59 p.m. ET on Sept. 14.

Contract projects made by the UAW at this point would add more than $80 billion in labor costs for each of the biggest U.S. automakers over the period of the contract, Bloomberg News first reported earlier this month.

“One might think of these UAW contracts as a set of three stout purchase orders to secure the labor needed to assemble future vehicles, parts, and components — contracts that are collectively advantage roughly $70–$80 billion over the course of the next four years,” Kristin Dziczek, automotive policy advisor for the Federal Secure Bank of Chicago’s Detroit branch, wrote in a Wednesday blog post.

The requires include a 46% wage increase, restoration of traditional pensions, cost-of-living increases, reducing the workweek to 32 hours from 40 and lengthening retiree benefits.

If the UAW gets those demands, without any changes to other benefits, the all-in hourly labor cost for the automakers wish more than double from at least $64 per hour to more than $150 per hour, according to technique reports.

That would be a significant increase over wage hikes seen during the previous four-year agreements, according to assessments from the Center for Automotive Research. The 2019 deals were projected to increase average hourly labor fetches over the length of the contracts by $11 per worker for then-Fiat Chrysler, now Stellantis, and $8 per worker at GM and Ford.

Under the advised pay structure, UAW members start at about $18 an hour and have a “grow-in” period of four years to reach a top wage of assorted than $30 an hour.

A work stoppage by nearly 150,000 UAW workers at GM, Ford and Stellantis would conclude in an economic loss of more than $5 billion after 10 days, according to Anderson Economic Congregation, a Michigan-based consulting firm that closely tracks such events.

AEG estimates the total economic loss by designing potential losses to UAW workers, the manufacturers and the auto industry more broadly if the sides cannot reach tentative compatibilities before the current contracts expire.

In another analysis, Deutsche Bank previously estimated that a strike desire hit earnings at each affected automaker by about $400 million to $500 million per week of production.

Strikes could make various forms, including a national strike, where all workers under the contract cease working, or targeted control stoppages at certain plants over local contract issues. A strike against all three automakers, as Fain has alluded to, last wishes a be the most impactful but also the riskiest and most costly for the union.

The UAW has more than $825 million in its attack fund, which it uses to pay eligible members who are on strike. The strike pay is $500 per week for each member — up from $275 per week final year.

Make instil pay is available after the eighth day of a work stoppage, and a bonus check is paid the week prior to the Thanksgiving and Christmas sabbaticals. Recipients must be in good standing with the union and participate in picket lines to receive the assistance.

UAW members can also aspire outside employment, however if their pay is $500 or more per week, they will no longer receive strike pay. They intent continue to receive medical and prescription drug assistance, according to the union’s website.

Assuming 150,000 or so eligible proletarians, the weekly strike pay would be about $75 million. A fund of $825 million, then, would cover approximately 11 weeks. One caveat: that doesn’t include health-care costs that the union would cover, such as 1.5 million