New York: The specter of crippling labor strikes and rising costs slammed stocks of the two major US automakers, with General Motors notching its worst weekly run in nearly five months and Ford Motor closing at its lowest since early June.
Shares of GM and peer Ford nosedived amid a rush of news that heightened fears over surging labor costs. Both car manufacturers are currently in talks with their labor union - United Auto Workers (UAW) - on new contract terms, and a report Tuesday suggested that the demands could end up adding more than $80 billion to each of their labor costs.
Investors’ anxiety was also fueled by courier firm Union Parcel Service lowering its profit outlook for the year on the back of rising costs stemming from its own recent tentative agreement with the International Brotherhood of Teamsters.
“The recent success of the Teamsters contract negotiations has cast a spotlight on the current environment where Labor has the upper hand over capital in the post lockdown economy,” Arthur Hogan, chief market strategist at B. Riley Wealth, said in an interview.
Shares of GM dropped 0.8 per cent on Friday, and fell 7.3 per cent for the week, the biggest such plunge since March 17. Ford declined 5.8 per cent on the week and closed at its lowest since June 1.
Investors increasingly worry that unions now have the advantage in contract negotiations, which raises the risk of work stoppages and subsequent production disruptions, in addition to higher costs, analysts and strategists said.
“The expiring UAW contract on Sept. 14 is the most imminent risk to GM & Ford,” Wells Fargo analyst Colin Langan wrote in a note. The union’s “audacious demands” raise the risk of a strike, he said, estimating meeting all UAW demands implies wages will rise to about $136 per hour from about $66 per hour.
Shares of GM and Ford have been on a volatile ride this year, but the going got really rough over the past month amid concerns about the slow progress of their electric-vehicle programs, pressure on car prices as inflation cools and growing anxiety over union talks. Those headwinds sent both stocks down at least 15 per cent in the past month.
While the selloff may support the view that much of these risks are already priced into the stocks, Matthew Tuttle, chief investment officer at Tuttle Capital Management, warns more declines are possible.
“Both stocks are not far from important support at the May highs, and if that breaks then there could be a lot lower to go,” he said.