UAW Strike: GM in ‘most vulnerable position,’ analyst says

The United Auto Workers strike deadline against the Big Three automakers, Ford (F), General Motors (GM), and Stellantis (STLA), is just over 24 hours away. CFRA Equity Analyst Garret Nelson joins Yahoo Finance Live discusses how the potential strike will impact the automakers and other companies, such as suppliers.

Nelson says, “it’s nearly 100% certainty that there is going to be a strike,” but the big question is will “the UAW strike one company, would they strike all three, or specific plants? And the latest chatter is that they’re likely to strike specific plants.”

Nelson notes that “General Motors is in the most vulnerable position... because of their inventory.” Nelson explains how GM has reportedly “made the most generous offer” recently and seems “to be making more concessions” compared to Ford or Stellantis because GM’s inventories are “much lower across their four major brands, Chevy, Cadillac, Buick, and GMC, than the inventories of any of the Ford or Stellantis brands.”

Nelson adds that Magna International (MGA) and Lear Corporation (LEA) are “most at risk” from a strike because of their degree of exposure to the Big Three. Whereas, Tesla (TSLA) would be “the big winner” from a UAW strike.

Video Transcript

AKIKO FUJITA: Well, the deadline for the UAW strike is now just over 24 hours away. Reports say the UAW is looking to target specific auto plants for the strikes if they don't reach a labor deal in time. President John Faine speaking Wednesday, said the union is making slow progress, but it still wants significant pay increases. Joining us now is CFRA equity analyst Garrett Nelson. Garrett, good to talk to you today. Where do things stand and what's the likelihood, 24 hours away or just over 24 hours away, that this is going to end up in a strike?

GARRETT NELSON: Sure. Thanks for having me. We think it's nearly a 100% certainty that there is going to be a strike. There has been some movement in negotiations, both sides making concessions from their initial proposals, but there's still a very sizable gap in terms of what each side is requesting, and so we think the likelihood is very high that at midnight tomorrow Eastern there will be a strike. The big question, as you referenced, was, would the UAW strike one company, would they strike all three, or specific plants? And the latest chatter is that they're likely to strike specific plants.

SEANA SMITH: So, Garrett, then what specific plants? And I guess when you take a look at some of the proposals laid out here from the automakers, is there one that stands out to you that maybe is the closest here in meeting the union's demands?

GARRETT NELSON: Yeah, so if you look at the Detroit three, reportedly GM has made the most generous offer just in the last few days. They seem to be making more concessions than either Ford or Stellantis, and we think there's a reason behind this, and that's that if you look at GM's inventories, they're much lower across their four major brands, Chevy, Cadillac, Buick, and GMC, than the inventories of any of the Ford or Stellantis brands, and so they're really in a more precarious position and they could be hurt much more than either of the other two companies, who could go a matter of weeks or so before there was real damage, more significant damage to their financials.

AKIKO FUJITA: Well, and, Garrett, it's worth reiterating that these are negotiations that are happening, three separate negotiations that are happening among the companies. Of course, this comes at a time of incredible transition within the auto industry, as all three US car makers join this transition to all electric. Who do you think is in the most vulnerable position right now in case this goes to a strike, and one that lasts more than several weeks?

GARRETT NELSON: Yeah, we think General Motors is in the most vulnerable position, as I mentioned, because of their inventory position, but this is a lot different. If you look back in 2019 when there was a 40-day strike at General Motors, the two sides are much further apart heading into that strike this time than they were four years ago, and so that's why kind of our base case is a strike that lasts several weeks. If there was a resolution before that, we think that's not as likely than a strike that could go on longer than several weeks, and so-- you know, but there's a lot of issues that are at play.

The union is demanding a reduced workweek but wanting to be paid for a full 40-hour workweek. They're demanding the restoration of traditional pension plans. They're demanding one-time payments, inflationary cost of living adjustments, and also guarantees regarding job security as the industry transitions toward electric vehicles, which require 30% to 40% fewer workers to build than a traditional internal combustion engine vehicle. So there's a lot of very complicated issues, and that's one of the reasons why this is, we think, more likely to be a prolonged strike than a short one.

SEANA SMITH: And, Garrett, when we talk about the ripple effects here from this, it's not just the three large Detroit automakers that could potentially be at risk. We've often talked about the suppliers and what that could mean there for their businesses here, at least in the short term. Who, from your perspective, are there suppliers that have the most exposure to this potential strike?

GARRETT NELSON: That's exactly right. The Detroit three automakers, all three are flush with cash right now, so they can survive a prolonged strike. But if you look at the auto suppliers, their balance sheets just aren't as strong, and they have very high exposure to the Detroit three. The two companies we think most at risk with the highest degree of exposure are Megna International and Lear Corporation. Both those companies derived over 40% of their total revenues last year from the Detroit three companies.

At the other end of the spectrum, you know, companies-- the auto suppliers not as dependent but still get north of 25% of their total revenue from the Detroit three are companies like Aptiv and Autoliv. Those two companies are auto suppliers actually based in Europe, but they have significant exposure in the US, and so these auto suppliers, they just don't have the balance sheet strength. They don't have the stronger balance sheets, the liquidity position, and if there's any impact on production, there's probably-- they're probably going to have to announce, you know, furloughs for their workers, and so the degradation of the supply chain is a real risk, and it could really-- a prolonged strike could really have crippling ripple effects across the industry.

AKIKO FUJITA: Garrett, no question those like Tesla as well as other car makers, particularly foreign car makers, watching these negotiations very closely, largely because they operate in markets that aren't required to be union. If this does end up in a prolonged strike, who do you think can chip in to that market share? Is Tesla the biggest beneficiary out of all of this?

GARRETT NELSON: Tesla is. They already account for 2/3 of all EVs sold in the US, and they have a cost advantage over the Detroit three. So you look at the Detroit three, their labor costs will be going up. It's just a question of by how much when a deal is eventually struck. And so, you know, it really widens Tesla's competitive advantage, and I think that's why you've seen the stock perform very well here over the last month or two leading up to this strike deadline, and so they're really the big winner.

But also some of the foreign automakers, if we get in a situation where inventories start to deplete when looking at the Detroit three companies and companies like Toyota, Honda, Volkswagen, and so forth have much more plentiful inventories, they should benefit from a sales perspective, and obviously they're not going to feel the impact of higher wages from UAW wage increases that the Detroit three are.