GM and Ford report Q3 earnings as Wall Street and UAW watch

  • General Motors and Ford Motor Co. this week report third-quarter earnings and future guidance amid strikes and contract negotiations with the United Auto Workers union.
  • If automakers beat Wall Street’s expectations, it could fuel the union’s core argument that companies can offer more concessions amid healthy profits.
  • But if the impact of the company’s guidance or UAW efforts is too great, they risk spooking Wall Street and driving down already discounted stock prices.

Jim Farley, CEO, Ford, left, and Mary Barra, CEO, General Motors

Reuters; General Motors

DETROIT – Ready for a tight walk?

General Motors and Ford Motor Co. this week report third-quarter earnings and future guidance amid strikes and contract negotiations with the United Auto Workers union. And it’s a tough balance.

If the automakers beat Wall Street’s expectations, it could fuel the union’s key argument that companies can offer more concessions amid healthy profits — sparking strikeouts and contentious talks.

But if the companies, which could include several caveats in future comments, get too bullish on guidance or the impact of UAW efforts, they risk spooking Wall Street and driving down already discounted stock prices.

GM is expected to report third-quarter earnings of $1.88 per share before the bell on Tuesday, while Ford is expected to earn 45 cents per share after markets close on Thursday, according to average estimates compiled by LSEG, formerly known as Refinitiv.

While investors will certainly be watching the third-quarter results, the real audience is expected to be the effects of the UAW strike and negotiations on Ford and GM’s long-term plans and long-term earnings of the union, Stellandis. There is also a strike.

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The union will also notice.

Members of the United Auto Workers, or UAW, Local 230 and their supporters picket in front of the Chrysler Corporate Parts Division in Ontario, California on September 26, 2023.

Patrick D. Fallen | AFP | Good pictures

The UAW regularly uses earnings reports and commentary from executives, including GM CEO Mary Barra and Ford CEO Jim Farley, to promote its efforts and collective bargaining.

“When you’re negotiating, you want to use every piece of news that’s in your favor to bring to the table with the public,” said Art Wheaton, a labor professor at the Labor Institute at Cornell University. “If GM, Ford and Stellantis are still profitable in the third quarter, [UAW’s] He’s going to say, ‘They’re too cheap to bargain with, and they should give us more.’

The union said Friday that despite record deals from automakers, “there is more to win.” The strike, however, refused to be extended.

However, its targeted strikes against three major automakers, which began on September 15, are expected to have a greater impact in the fourth quarter than in the previous three months. The UAW has been slowly expanding the walkouts to include additional assembly plants and distribution centers.

GM said in September that the strike cost about $200 million in lost production. Ford and Stellantis, which reports its quarterly results on Oct. 31, did not release their estimates of the impact of the strikes.

JP Morgan estimates strike costs of $145 million at Ford and $191 million at GM on an earnings-before-interest-and-tax basis in the third quarter.

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Those losses are expected to rise to $517 million for Ford in the fourth quarter — after the union began a strike at its most profitable U.S. truck plant in Kentucky — and $507 million for GM.

The Kentucky plant — responsible for $25 billion in annual revenue — was the most significant strike initiated by the union. It manufactures the F-Series Super Duty pickup trucks and the Ford Expedition and Lincoln Navigator SUVs.

While many analysts continue to see the UAW strike as a short-term problem, some acknowledge that the eventual high costs of the concession agreement could hurt automakers’ electric vehicle plans and long-term competitiveness relative to other non-unionized automakers.

United Auto Workers President Shawn Fine during an online broadcast to update union members on negotiations with Detroit automakers on Oct. 6, 2023.

Screenshot

Wolfe Research analyst Rod Lache said Monday that labor costs for Detroit automakers are expected to increase by $3,000 to $4,000 per vehicle, based on the latest projections, compared to competitors’ costs of $2,500 to $3,000.

“This can add to other challenges for OEMs [original equipment manufacturers] Face (eg competitiveness in batteries, distribution, design). “We are also concerned that OEMs have not yet fully appreciated the long-term risks associated with the UAW’s new action — including bargaining in public, social media and populism,” Lachey said in an investor note. “Adjust to this reality.”

The most recent offers from GM and Ford include a 23% wage increase over the life of the contract, cost-of-living adjustments, additional vacation days and other improvements compared to the 2019 contracts.

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The talks have also had an impact on electric vehicles, which have already seen slower-than-expected sales amid inflation, high interest rates and a lack of infrastructure.

Ford said last month it would suspend construction of a new $3.5 billion battery plant in Michigan until the company is “confident” in its ability to operate the plant competitively amid UAW talks.

And GM said this week it would delay production of all electric trucks at its Michigan plant by at least a year to “better manage capital investments” and implement improvements in an effort to make the new EVs more profitable.

A GM spokesman said the change in plans was not connected to the company’s contract negotiations with the UAW. However, the controversial talks involve EVs, and the company’s current contract plans are expected to be more expensive than in years past.

Wall Street will be watching for updates on EV progress and demand.

Even EV sales leader Tesla CEO Elon Musk was cautious about demand for electric vehicles when Tesla reported earnings last week.

“I worry about the high interest rate environment we’re in,” Musk said. “If interest rates are high or even higher, it’s more difficult for people to buy a car.”

— CNBC’s Michael Bloom contributed to this report.

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