With approximately 400,000 active members across the United States, Canada, and Puerto Rico, United Auto Worker’s (UAW) strike against the largest automotive manufacturers in the United States, the “Detroit Three”, has the potential to become the largest strike witnessed by the industry yet.
According to USA Today, unsuccessful negotiations in reaching new labor agreements before the expiration of the existing contracts, led to the union calling a strike against “Detroit Three,” namely General Motors GM, Ford F and Stellantis STLA.
What Does the Strike Hold in Store for Auto Sales?
With auto sales yet to fully rebound from the pandemic trough, the strike can throw the industry back into disruption, reducing inventory levels. Presently the strike is being held at three plants which are responsible for the final assembly of vehicles, interrupting the production lines of particular models only. However, production is expected to continue at unaffected plants.
According to CNN, If the UAW were to initiate strikes at plants responsible for manufacturing components such as engines and transmissions, it could potentially result in a more significant disruption within the industry.
The flow of new vehicle sales is not forecast to be disrupted completely as dealerships stay unaffected. However, the resultant low inventory levels could generate price pressure on domestic manufacturers, contributing to a further increase in car prices.
Economic Effect of the Strike
The strike is not expected to dramatically scar the economy but surely will have repercussions, which will be felt far and wide. However, according to an article on the CNN, the strike’s final effects will depend on a number of factors, including its duration, whether corporations lay off workers at other factories, how many employees walk off the job, and how long it takes for the unions and businesses to negotiate a settlement. Per the USA Today article, in the previous UAW action in 2019, GM lost about $3 billion with 46,000 workers going on a strike lasting for 40 days.
Anderson Economic Group estimates that if all the workers at “Detroit Three” were to strike for 10 days, the U.S. economy could be affected to the tune of $5 billion and the production of 25,000 vehicles could be disrupted, as quoted IN the CNN article. With car prices already up about 3% since last year, a further increase may be in store.
Another estimate in the article, forecasts that the economic burden faced by the U.S. economy could escalate to nearly $9.1 billion if the strike stretches to eight weeks.
Tesla to Gain From the Strike?
Under the union’s pressure, Ford, GM and Stellantis are expected to increase worker wages resulting in increased operating costs for manufacturers. This development could potentially provide Tesla TSLA with a competitive advantage over its peers, especially as they are transitioning to electric vehicles (EVs).
According to Wall Street Journal, no matter what the outcome of the strike, Tesla has already gained from the strike. Tesla, which already has a significant cost advantage over its older U.S. counterparts in the EV market, who are grappling with decades of legacy expenses while navigating the expensive shift to EVs.
Tesla, already engaged in a price war with its global counterparts, witnessed a 20% increase in its second-quarter 2023 profits after slashing its prices. The strike could favor other manufacturers like Toyota, Nissan and Hyundai, whose workers remain ununionized, as car sales could be pushed toward them.
ETFs in the Spotlight
With the UAW entering its fourth day on Monday, 18 Sep, the strike could exert a significant influence on both automotive ETFs and EV ETFs, impacting major players in both categories in both positive and negative ways.
Tesla stands to gain from the strike, while Ford and GM, may face adverse effects. Ford is considering a slowdown in EV production due to losses, and GM is dealing with supply chain and battery manufacturing setbacks. According to Reuters, the strike may offer GM an opportunity to tackle its technical and operational challenges, but the possibility of loss of billions outweighs any potential benefits.
Below, we highlight a few ETFs that could be affected by UAW’s strike.
First Trust Nasdaq Transportation ETF (FTXR)
First Trust Nasdaq Transportation ETF has an exposure of 10.47% to Tesla and 6.78% to GM. The fund has a Zacks ETF Rank #2 (Buy) and has fallen about 1.19% since 15 Sep (as of Sep 18).
First Trust S-Network Future Vehicles & Technology ETF (CARZ)
First Trust S-Network Future Vehicles & Technology ETF has an exposure of 4.8% to Tesla and 0.79% to Stellantis. The fund has a Zacks ETF Rank #3 (Hold) and has declined about 1.08% since Sep 15 (as of Sep 18).
Global X Autonomous & Electric Vehicles ETF (DRIV)
Global X Autonomous & Electric Vehicles ETF has allocations in Tesla (3.29%), Stellantis (1.58%), Ford (1.50%) and GM (1.47%). The fund has fallen about 1.64% since 15 Sep (as of Sep 18).
KraneShares Electric Vehicles and Future Mobility Index ETF (KARS)
KraneShares Electric Vehicles and Future Mobility Index ETF has an exposure in Tesla (4.80%) and Ford (1.04%). The fund has fallen about 1.99% since 15 Sep (as of Sep 18).
Ford Motor Company (F): Free Stock Analysis Report
Global X Autonomous & Electric Vehicles ETF (DRIV): ETF Research Reports
General Motors Company (GM): Free Stock Analysis Report
Tesla, Inc. (TSLA): Free Stock Analysis Report
First Trust S-Network Future Vehicles & Technology ETF (CARZ): ETF Research Reports
First Trust NASDAQ Transportation ETF (FTXR): ETF Research Reports
KraneShares Electric Vehicles and Future Mobility Index ETF (KARS): ETF Research Reports
Stellantis N.V. (STLA): Free Stock Analysis Report
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