Oct 25, 2019

Detroit's gamble on the future

Illustration: Eniola Odetunde/Axios

The deal between one of Detroit's biggest automakers and striking workers is a calculated bet on a vision for the auto industry that's far from certain.

The big picture: GM can afford the rich contract terms negotiated with the United Auto Workers — as long as nothing goes wrong. Higher gas prices, an economic downturn or a new president with different priorities could throw off the entire equation and put GM and other domestic automakers in a financial bind.

  • On top of those worries, the industry is facing the most disruptive technology shift in 100 years, leaving companies like GM awkwardly straddling the past and future.
  • Jonathan Smoke, chief economist at Cox Automotive, says it's not clear when the inflection point for giving up the steering wheel will be, if ever.

Driving the news: UAW members and General Motors approved a four-year labor contract on Friday, which secured better pay and benefits for workers. The union will now turn its attention to Ford, with the GM contract as a template.

  • The end of the nearly 6-week-old strike comes with a promise from UAW to not oppose GMs' plans to close four facilities across the U.S. The strike has cost GM $1.75 billion in lost profits, according to Anderson Economic Group.
  • GM committed to adding thousands of new jobs and said it would decrease the number of years required for workers to earn the top wage of more than $32 an hour. Union members were divided prior to the deal on whether it provided enough long-term job security.

GM is more aggressive than most in the push toward the future with its majority stake in self-driving startup Cruise Automation and a plan to introduce 20 EVs by 2023.

  • The automaker is sustained, however, by the fat profits from traditional pickup trucks and SUVs.
  • To pay for the R&D on future technologies, GM needs to keep pushing those gas guzzlers for the foreseeable future.
  • "They're really trying to run 2 auto companies," says Barclays automotive analyst Brian Johnson.

GM tried to protect its flexibility in the labor agreement by trading higher wages and benefits for the ability to close a massive car factory in Ohio and two transmission plants.

  • Yes, but: Detroit's total labor costs remain significantly higher than foreign-based rivals with factories here: $63 per hour at GM vs. $61 for Ford, $55 for Fiat Chrysler and $50 for the so-called transplants.

But all 3 Detroit carmakers left their flank open by getting out of the traditional sedan business — effectively ceding that market to Asian competitors.

A new president could alter the landscape, too. Sen. Elizabeth Warren, for example, has pledged to halt fracking, which would likely drive up oil prices.

  • That would make those thirsty trucks and SUVs less appealing to consumers, squeezing Detroit's primary profit source.
  • Trade policy and emissions standards are also wild cards, depending on who is in the White House.

What to watch: Auto sales are already trending downward. A recession would cause them to drop 20%, Smoke tells Axios.

Go deeper: 40-day GM strike ends with new labor contract

Go deeper

40-day GM strike ends with new labor contract

General Motors workers and supporters in Bowling Green, Kentucky on Sept. 20. Photo: Reuters/Bryan Woolston/File Photo

The first U.S. auto strike in 12 years came to an end on Friday after the United Auto Workers and General Motors approved a four-year labor contract, CNBC reports.

Where it stands: UAW secured "annual lump-sum bonuses" or raises plus $11,000 ratification bonuses, per CNBC, and said it would not block GMs' plans to close four facilities across the U.S. GM committed to adding thousands of new jobs and said it would decrease the number of years required for workers to earn more than $32 an hour. Some of the union’s 48,000 members employed at GM are expected to return to work as soon as Saturday.

Go deeperArrowOct 25, 2019

UAW strike is a $3 billion hit to GM's 2019 earnings

Photo: Paul Hennessy/SOPA Images/LightRocket via Getty Images

GM announced Tuesday that it had earned $2.3 billion in the third quarter, down 8.7%, adding that the 40-day UAW labor strike will reduce its 2019 earnings by about $2 per share — or nearly $3 billion.

Driving the news: About one-third of the strike impact was felt in the third quarter, which ended September 30. Workers returned to factories last Friday after ratifying a new four-year contract. GM said the financial results, driven by truck and SUV profits, demonstrate its ongoing resilience and said the labor agreement allows it to maintain its operating flexibility in the future.

Go deeper: GM, Michigan and 2020

Keep ReadingArrowOct 29, 2019

It's every carmaker for itself

The once monolithic automotive industry is splintering over a range of issues, as companies scramble to cope with unprecedented technological disruption and business challenges.

The big picture: Although fiercely competitive in the showroom, automakers have long presented a united front on shared interests like trade policy, government regulations and labor relations. That's all gone out the window lately; now it's every man for himself.

Go deeperArrowNov 22, 2019