Auto ETF in Focus as Automakers Reach Deals with UAW
In a significant development in the ongoing labor dispute in the American automotive industry, General Motors GM has reportedly reached a tentative agreement with the United Auto Workers (UAW). This marks a significant step toward ending a contentious labor dispute that has plagued the industry for over six weeks.
While specific details of the agreement have not been disclosed, it is believed to closely mirror the agreements reached by GM's competitors, Ford F and Stellantis. First Trust NASDAQ Transportation ETF FTXR may be watched closely, going forward, due to end of labor strike in the auto sector (read: Auto ETF in Focus as Ford & UAW Reach Tentative Labor Deal).
Economic Impact and Stock Market Response
The strike, which has persisted for about one-and-a-half months, has had a substantial economic impact. Estimates suggest total losses stemming from the auto workers' strike have reached a staggering $9.3 billion. This includes disrupted production and supply chain disruptions, affecting various sectors of the economy.
Furthermore, the stock market has reacted to this development, as General Motors shares slumped about 13% past month. Notably, the strike is estimated to have cost General Motors approximately $200 million during the September quarter. General Motors withdrew its 2023 profit outlook. The company attributed this decision to the rising costs associated with the UAW strikes. However, General Motors gained 3.1% on Oct 31, responding to the UAW deal.
Parallels with Ford and Stellantis
The agreements signed by Ford and Stellantis have set a precedent for labor negotiations in the automotive sector. These agreements encompass substantial wage increases, the reinstatement of COLA (cost of living adjustment) benefits, the implementation of a three-year wage progression to top pay, the conversion of temporary employees to full-time positions, and the elimination of wage tiers, among other benefits.
Unique Challenges in GM's Negotiations
GM's negotiations with the UAW took longer to reach a resolution compared to its rivals, primarily due to specific challenges the company faced. One of the major hurdles was addressing pension payment obligations. Additionally, the process of converting temporary workers into full-time employees presented its own set of complexities. However, it appears that these issues have now been successfully resolved.
Details from Ford's Agreement
Recent disclosures shed light on the specifics of Ford's agreement with the UAW. Ford has committed to investing a substantial $8.1 billion in various U.S. plants. This investment includes $2.1 billion allocated to Ohio Assembly for current products and a new electric van, $1.2 billion for Louisville Assembly in Kentucky to produce new EVs, pickups, and SUVs (including hybrid versions of the Ford Expedition and Lincoln Navigator), $1 billion for Ford's Kansas City truck assembly plant, and $900 million for F-150 production and a new electric truck.
Additionally, Ford has agreed to integrate its battery and electric vehicle (EV) plants into the UAW master agreement. Furthermore, it has granted workers the right to strike in the event of plant closures, marking a significant concession by the automaker.
Stellantis' Agreement and Reopening of Belvidere Plant
Stellantis, the parent company of brands like Jeep, Chrysler, and Dodge, has also reached a tentative agreement with the UAW. One of the most notable aspects of this agreement is Stellantis' commitment to reopen a Jeep plant in Belvidere, Illinois. This plant, previously closed, will now become the site for assembling a new midsize pickup and constructing a new battery plant.
Canadian Autoworkers Also Reach a Deal
The momentum in labor negotiations extends beyond the U.S. border. Canada's Unifor autoworker union recently announced that it has reached a tentative agreement with Stellantis. With this development, all three major automakers operating in Canada have now secured tentative labor deals, bringing stability and assurance to the automotive industry in the region.
ETF in Focus
First Trust NASDAQ Transportation ETF FTXR
The Nasdaq US Smart Transportation Index is a modified factor weighted index, designed to provide exposure to US companies within the transportation industry. Ford Motors has 8.53% exposure to the fund and also contains the first spot. General Motors Company too has about 7.8% in the fund. The fund charges 60 bps in fees. The fund is off about 9% past month but added about 1% on Oct 31, 2023.
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)
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