Ford Motor Co. and General Motors are working to convince Wall Street that they can absorb billions of dollars in added labour costs resulting from newly ratified UAW and Unifor contracts — but they'll need to cut spending and run their businesses more efficiently to do so.
The automakers said last week that the financial toll of the agreements, reached after a six-week strike, were higher than they had anticipated going into negotiations. Ford pegged the cost of the four-and-a-half-year deal at $8.8 billion (all figures in USD) — double its expectation — while GM said its UAW deal and a new pact with Canadian union Unifor add up to $9.3 billion. Although the UAW's strategy of targeting select manufacturing facilities with walkouts helped limit damage, both automakers lost more than $1 billion worth of production.
Stellantis has not disclosed the cost of its UAW contract, but it effectively made the same deal as its rivals, with the addition of agreeing to reopen an idled Illinois assembly plant in 2027.
Despite giving the UAW more than expected, Ford and GM projected strong profits for the year, lowering guidance only slightly from what they previously had told investors. Executives at each automaker expressed confidence in the underlying strength of their business, signaling that the labour cost gap with nonunion rivals should not worry investors.
To underscore the point, GM said it would buy back $10 billion in shares while increasing its dividend.
"Labour cost is not as significant from an overall cost perspective as it was in the past," Michael Ward, equity research analyst at Benchmark, told Automotive News. "GM and Ford should be able to offset most of the increase in labour costs with other improvements."
Wall Street responded by sending GM shares up more than nine per cent on Wednesday, Nov. 29, the automaker's largest one-day gain in nearly three years. Ford shares remained largely stagnant last week, however.
Ford has struggled in recent years with warranty costs and other systemic quality issues that have sapped profits, leading CEO Jim Farley to promise change and the automaker to update how it tests and launches new products.
CFO John Lawler, speaking at a Barclays conference, insisted that Ford is making necessary improvements that will stick and allow effective management of the business. In February, officials said Ford was at an $8 billion cost disadvantage against its competitors.
"We have religion on capital efficiency," Lawler said. "We have a tremendous amount of change going on. We're very pleased with where our balance sheet sits."