How a strike puts Detroit’s drive to electric vehicles at risk

An impending strike by the United Auto Workers against automakers in Detroit could determine whether the electric cars Americans buy in the coming years will come from the traditional, domestic auto industry or from the foreign startups and brands seeking to oust them.

The reason, analysts say, is that several outcomes — such as a strike, a deal to raise workers’ wages, or both — could force America’s legacy automakers to make tough choices that other non-union auto producers don’t have to make. In other words, UAW negotiations could influence which companies stand to win or lose from transitioning away from fossil fuels.

The tension between affordable electric cars and good wages for union workers is at the heart of a dilemma for President Joe Biden, an ardent supporter of both. Biden is in the dangerous position of supporting electric vehicles as part of his broader climate agenda while relying on union voters in hotly contested states like Michigan to give him a second term in 2024.

Ford Motor Co., General Motors Co. and Chrysler parent Stellantis NV have until midnight Thursday to find common ground with the UAW on wage increases and other benefits — or face the possibility of some or all of their 146,000 unionized workers going on strike.

Experts believe a strike is possible. The UAW and the Big Three U.S. automakers remain far apart on the lines of labor contracts, and UAW President Sean Fine has dismissed the companies’ offers as insufficient. The underlying concern among workers: Electric cars are simpler machines and require fewer hands to manufacture than gasoline-powered vehicles.

If factory lines stop running or if labor costs rise significantly compared to competitors, traditional U.S. automakers may be forced to delay their offerings or raise prices for their electric vehicles. This, in turn, could create opportunities for Asian and European competitors or for electric-only vehicle manufacturers such as Tesla Inc. and Rivian Automotive Inc., to lure customers away.

“It’s a critical moment,” said J.R. DeShazo, who has studied the role of labor in the transition to electric vehicles and is dean of the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin.

Automakers are “all trying to figure out how to change the menu they offer to consumers,” he said. For unionized automakers, “this strike has the potential to significantly slow the expansion of electric and existing vehicles.”

The UAW has demanded raises of up to 40 percent, shorter work hours, and the repeal of waivers it made during the Great Recession of 2008 and 2009, when many automakers were on the brink of bankruptcy. Automotive industry advocates say satisfied employees are more likely to be motivated and productive, and they play a crucial role in the automotive industry.

“The cost of striking may be high, but the cost of not striking is even higher,” said Fine, the UAW president.

The UAW refers to the big profits and large executive compensation packages amassed by major U.S. automakers in recent years.

According to a study by the nonprofit Economic Policy Institute, the Big Three automakers have generated cumulative profits of $250 billion in the past decade, while executive salaries have risen by 40 percent. The UAW wants these profits to be shared with the workers. With high demand for skilled workers, the union is in a strong negotiating position.

“It is important to remember that a just transition requires more than just replacing the fuel source,” said J. Meijin Cha, an assistant professor of environmental studies at the University of California, Santa Cruz, who studies labor issues. “A transition to electric vehicles that leaves workers behind is not a just transition.”

However, it is unclear whether simpler vehicle assembly would necessarily shrink the UAW’s job listings. As automakers shift to electric vehicles, they have also brought key components in-house that would previously have been made by suppliers.

“There will be a need to build other components, such as batteries, electric motors and power electronics,” said Sam Abu Al-Samad, an automotive analyst at consulting firm Guidehouse Insights. “There will be job opportunities for the union.”

Any strike is unlikely to have an immediate impact on the availability of electric models from traditional US automakers. This is because their dealers currently have a large backlog of electric vehicles, with the cost of these vehicles being more than most buyers can afford.

“The thing that will be least affected during the strike is electric cars, at least in the short term,” said Karl Brauer, an analyst at car sales site iSeeCars.com.

Ford and GM are in the crossfire

Today’s labor unrest and the future of electric vehicles are closely tied to the two automakers most at risk, Ford and General Motors.

Both are in the middle of an expensive and complex rollout of electric vehicles. Stellantis, which still has a year to go before a US electric vehicle hits the market, has a bigger time cushion.

On Wednesday, Ford CEO Jim Farley said in a statement that the company “put 100% of our energy into reaching an agreement with the UAW that rewards our valued employees and allows the company to invest in the future.” If there is a strike, it’s not because Ford didn’t put on a great show.

“The future of our industry is at stake. Let us do everything we can to avoid a catastrophic outcome,” he added.

As for Ford and GM, Dan Ives, an analyst at Wedbush Securities, said in a report: “In this critical period of electric vehicle implementation, modelling, distribution, and marketing, and with competition for electric vehicles increasing across the board, it cannot be “The timing couldn’t be worse.” Note to investors on Monday.

There are short- and long-term risks for Detroit automakers.

In the short term, GM’s weaknesses include multiple mass-market electric vehicles that it will roll out this fall before a broader push in 2024. Its Chevrolet brand offers a Silverado pickup truck and two SUVs, the Blazer and Equinox — all Electric versions of popular vehicles intended for widespread distribution.

Meanwhile, Ford just finished retooling its massive Rouge manufacturing complex in Michigan to triple production of the F-150 Lightning electric pickup truck.

In a note to investors on Wednesday, Moody’s said each automaker could lose up to $5.4 billion in a six-week strike. That’s the duration — and cost — of the last time the UAW struck General Motors, which was in 2019. “This will slow the companies’ efforts to increase manufacturing of battery electric vehicles,” the memo said.

These deployments are the culmination of years of planning and billions of dollars in investment. Both automakers are intensely focused on working out the kinks in the system, and strikes at this time could delay the rollout of these vehicles, iSeeCars.com’s Brauer said.

The consequences of an electric vehicle strike could depend on how the UAW implements its plans.

Late Wednesday, the UAW’s Fine said that if agreements were not reached, the union starting Friday would implement a new type of labor action that he called a “strike.” Initially, it would target a small number of local unionists associated with specific factories and then expand to include others if union demands were not met.

“We will hit where we need to hit,” he said in a Facebook Live speech. “We will keep companies guessing.”

It is possible that the Auto Union will call a general strike against the three automakers and all of their factories simultaneously, but analysts consider this unlikely. Doing so would exhaust the strike fund that the UAW had salted away from member dues in order to keep workers afloat during the strike.

The UAW can strike one automaker but not another. It can also selectively hit final assembly plants or those that supply parts. The impact on EVs depends on the specific plants that are closed.

Two high-profile EV pickups, the Ford F-150 and Chevy Silverado, are manufactured in Michigan, and those plants could be hit by strikes. Other notable electric vehicles — the Ford Mustang Mach-E, GM Blazer and Equinox — are manufactured in Mexico, which falls outside the UAW’s jurisdiction. But downtime at facilities that make parts in the United States could halt Mexican production.

Work and EV tomorrow

There are long-term risks for the three automakers, including Stellantis.

An extended shutdown could impair companies’ ability to sell vehicles of all types, including electric vehicles. While Ford, Chrysler and Chevys are out of stock, Brauer noted that “you can still buy Honda, Toyota, Hyundai and Volkswagen” — all foreign automakers that build cars in the U.S. without union labor and aim to mass produce electric vehicles.

When it comes to electric vehicles, the obvious alternative is Texas-based Tesla, which is also not affiliated with a union and has sold nearly six in 10 of all new electric vehicles sold in the United States so far this year.

Speaking about the Big Three’s foreign competitors, Brauer said a prolonged strike “could cause market shares to shift away from domestic consumers, which continues after the strikes are resolved.”

A long strike, even at plants not dedicated to electric vehicles, could cripple EVs by restricting automakers’ ability to sell profitable conventional SUVs and trucks.

“They rely heavily on cash flow and profits from the sale of trucks and SUVs today to fund electric vehicle factories,” Guidehouse’s Abu Al-Samad said.

If a strike results in wage concessions that are too high — not only cutting into automakers’ profits, but essentially making cars more expensive for the major U.S. automakers than for their competitors — it could be difficult for Ford or General Motors. Or Stellantis could match the prices of electric cars from Tesla, Hyundai or Volkswagen in the coming years.

“It is difficult to find affordable electric cars today,” Abu Al-Samad said. “If labor costs go up significantly, it makes it more difficult.”

Fine said he is looking beyond issues like the prospects for electric vehicles and better standards for workers, whether they work in the UAW or outside it. “If we don’t secure this work and we don’t secure it on the standard of living, on the three big criteria, there will be no good future for anyone,” he said in comments recorded by National Public Radio.

DeShazo, the University of Texas professor, said the UAW must keep in mind that as the transition to electric vehicles evolves and competition intensifies, it cannot assume that employers will continue to be profitable enterprises that can keep all of their current workers employed.

“If (the union) asks for too much and they get it, automakers could find themselves at a disadvantage over the next 10 years,” he said. “It may come back to chasing workers because they got such a good deal.”