Automotive News - October 30, 2023 - 28

28 * OctOber 30, 2023
STRIKE
Ford says costs will rise
by $900 per vehicle
continued from Page 1
cost-of-living adjustments, gets new hires to
top wages more than twice as fast and significantly
improves pension and 401(k)
plans. It gives most workers an immediate 11
percent raise and more than four times the
gains they received in Ford's previous contract,
the union said.
" It's a home run, " said Art Wheaton, a labor
relations expert at Cornell University.
But it comes with a hefty price tag.
The 41-day strike against Ford cost the
company $1.3 billion, cutting production by
80,000 vehicles and prompting Ford to
sweeten the value of its contract offer by 50
percent since Sept. 15, according to UAW
President Shawn Fain.
The resulting deal will increase Ford's labor
costs by $850 to $900 per vehicle, CFO
John Lawler said last week while declining to
give a total price for the four-and-a-half-year
package. Wells Fargo estimated that Ford's
per-worker hourly labor costs will rise to $88
from roughly $64 today.
" We're going to have to find efficiency and
productivity throughout the system and
throughout the company to help mitigate
the impacts of the higher labor costs, " Lawler
said.
GM last week said the strike already had
cost more than $800 million, and Stellantis
may quantify the financial toll when it reports
partial third-quarter results this week.
'Turning the tide'
Fain cast the deal with Ford as a bigger-picture
win for the labor movement.
" This agreement sets us on a new path to
make things right at Ford, at the Big 3, and
across the auto industry, " Fain said. " Together,
we are turning the tide for the working
class in this country. "
Kate Bronfenbrenner, director of labor edresearch
at Cornell University's
JACKSON HALLAUER
Workers at a Stellantis plant in Sterling
Heights, Mich., joined the strike last week.
" They should have a more stable work
force as they pay better, " Wheaton said.
" That's going to help them in the long term. "
Finding a path
Ford Executive Chair Bill Ford had said
the company could " barely " afford the offer
it gave the union about a week before a deal
was reached, but Lawler said last week
there was " no doubt " it would remain profitable.
" Interestingly,
we're in a period of time
where we're seeing inflation, " Lawler said.
" When you're in a period of inflation, you
have to pay your people because it puts a
hardship on them, and then you as a company
have to go operate more efficiently, increase
your productivity and eliminate
waste. "
Marick Masters, a labor expert at Wayne
State University in Detroit, estimates the
deal could boost Ford's labor costs to $5 billion
per year. The company generated more
than $130 billion in revenue in the first nine
months of 2023.
" It's absorbable, " Masters said. " Some of it
ucation
School of Industrial and Labor Relations,
called it a " momentum victory " that will
have ripple effects on unionization worldwide.
" After
decades of concessionary agreements
and stagnating wages, the settlement
brings more than a 25 percent wage
increase, eliminates two tiers, provides significant
pension gains, and includes the
right to strike over plant closures - all critical
issues in the strike, " she said. " More
than that, the victory demonstrates that
unions can win when they run aggressive
and strategic strikes focusing on the issues
that resonate with workers and the broader
community. "
The union's lowest-paid workers stand to
benefit most.
UAW officials said temporary workers,
who start at about $16 per hour today, will
see a 150 percent increase by the end of the
Ford deal. Workers at two Ford plants who
receive lower wages will see raises of 85 percent
as they are brought onto the same pay
scale as other assembly employees.
Starting wages at Ford will rise from about
$18 per hour today to $28, the union said.
" They got a lot for the lower-paid workers,
which is a theme for recent strikes and struggles
for collective bargaining, " Wheaton said.
Those gains could lead to a more stable
work force that ultimately helps the companies,
Wheaton said.
The automakers have grappled with high
hourly employee turnover and attendance
issues, especially among new hires and entry-level
positions that offer pay comparable
to fast-food jobs for much more physically
taxing work.
Stellantis, in particular, called out absenteeism
as a problem at the start of negotiations,
saying it caused an estimated $217
million in lost sales in 2021 and 2022.
will be passed on in the form of a price increase.
I also think it could be offset by
cost-saving measures. They'll find a path to
deal with it. "
The higher costs, however, could make it
more difficult for the automakers to justify
future investments and hiring in the U.S., experts
said.
Ford, for example, has invested more than
it promised in each of the past three contracts.
Since signing its last pact with the
UAW in 2019, it added 5,600 more jobs and
spent $1.4 billion more than it agreed to.
Bank of America analyst John Murphy, in a
research note, said the contract could spur
investment in lower-cost countries. He expected
GM and Stellantis to match much of
what's in the Ford deal.
" In our view, the companies will be more
likely to build future plants and facilities outside
of the U.S., " Murphy wrote.
Final cost tally
The ultimate cost of the UAW's strike may
take some time to sort out.
While the union called Ford workers off
picket lines and back on the job hours after
reaching the tentative deal, the company has
said returning to full production could take
weeks and result in additional production
losses. Liz Door, Ford's chief supply chain officer,
previously said the Kentucky Truck
Plant alone relies on 600 suppliers and
would need four weeks to fully ramp back
up.
Patrick Anderson, CEO of Anderson Economic
Group, has pegged the strike's cost at
more than $9 billion, including more than $2
billion lost by suppliers.
" All three automakers have already been
forced to postpone or cancel some investments, "
Anderson said. " The full consequences
of these decisions will not be
known for some months, but they will not be
trivial. " a
Chip cuts affect China, Europe most
Automakers cut 141,506 vehicles from their global production plans over the past five weeks because
of microchip shortages, according to the latest estimate by AutoForecast Solutions.
Chinese assembly plants have been most impacted by the shortage since the forecasting firm's
Sept. 22 estimate, dropping about 57,700 vehicles from factory schedules.
Companies cut about 51,600 vehicles from production plans at European factories during the period
and about 26,400 at North American plants. About 2,900 vehicles were cut in Asia outside of
China, with roughly the same number removed from locations in South America.
AutoForecast Solutions estimates that between now and the end of the year, just over 74,600 more
vehicles will be cut from plans worldwide as the effects of the long supply chain shortage wane.
" While the chip shortage remains and will likely remain in some form through next year and possibly
beyond, the ability for many manufacturers around the world to hit their targets is growing, "
said Sam Fiorani, AutoForecast Solutions vice president of global vehicle forecasting.
- John Irwin
The breakdown
Number of vehicles eliminated from production schedules
2023 YEAR TO DATE
North America
Europe
China
Rest of Asia
South America*
Total
Source: AutoForecast Solutions
ELECTRIC
Despite delays, carmakers
stress profitability targets
continued from Page 1
profitability they must walk, particularly as the U.S.
EV market is becoming more saturated without
enough buyers, said Sam Fiorani, vice president of
global vehicle forecasting at AutoForecast Solutions.
If GM and Ford were to add hundreds of thousands
of units of capacity, he said, it would further crowd the
market and require lower pricing to move inventory.
" The market itself is the bigger factor here, and the
buyers are just not ready to transition in the volumes
that everybody needs in order to make a profit, "
Fiorani said.
A balancing act
GM withdrew its commitment to build 400,000
EVs by mid-2024 as it works to balance production
with demand, executives said last week, but is holding
to its 2025 capacity target and a goal to make its
EVs profitable by then.
The automaker is delaying three upcoming models
- the Chevrolet Equinox EV, the Chevrolet Silverado
EV's first retail-oriented trim and the GMC
Sierra EV Denali - by a few months, CEO Mary Barra
said on GM's earnings call. That followed a decision
to push back production of electric Silverados
and Sierras at a second plant - Orion Assembly
north of Detroit - until late 2025.
GM said the Orion move would defer at least $1.5
billion in spending. It cited the need to " better manage
capital investment while aligning with evolving
EV demand " and improve profitability with updated
engineering.
" It's clear that we're dealing with a lot of nearterm
uncertainty, " Barra said, referencing both the
UAW's lengthy strike and the EV transition.
" I hope it's equally clear that we're going to be acting
with purpose, we're going to remain agile and
we're making sure we have a system that has the
ability to respond to where the market is, " she said.
" And our commitment is to deliver a strong and
profitable ICE business, as well as a strong and profitable
EV business, for our future. "
Some Wall Street analysts said a reduction in EV
volumes raises questions about GM's ability to
achieve its profitability targets by 2025.
" With considerable uncertainty around EV demand,
pricing, input costs and magnitude of labor cost increases,
and spotty execution so far, we find it difficult to acquire
comfort in the achievability of these targets, " analysts
at Deutsche Bank wrote last week.
Ford, in addition to delaying a battery plant, is reducing
some Mustang Mach-E production. But the
company said it's moving forward on its BlueOval
City complex in Tennessee and the other Kentucky
plant it's building with partner SK On.
" The narrative has taken over that EVs aren't
Battery progress
GM expects its Ultium Cells joint venture battery
plant in Ohio to reach full capacity in November.
Barra said it's on track to produce 36 million cells
this year, with plans for 100 million in 2024.
A second battery plant, in Spring Hill, Tenn., will
come online early next year, rather than this fall, as
a result of construction delays, Barra said. Production
on GM's Ultium platform doubled in the third
quarter from the second quarter, she said.
GM will purchase lithium iron phosphate battery
cells for its second-generation Chevrolet Bolt EV,
the first use of that battery type in North American
Ultium-based vehicles, Barra said. She did not disclose
timing for the new Bolt; production of the existing
model is scheduled to end this year.
Barra said the next-gen Bolt will mean " we are
saving billions in capital and engineering expense,
delivering a significantly cost-improved battery
pack using purchased LFP cells, we're getting to
market at least two years faster, and our unit costs
will be substantially lower. " a
growing; they're growing, " CFO John Lawler told re- Michael Martinez contributed to this report.
958,350
507,598
466,645
270,095
78,457
2,310,258
2023 PROJECTED
979,368
533,787
476,091
284,634
81,889
2,384,881
*Unchanged from Sept. 22 estimate
Q3 earnings
Key figures from automakers' 3rd-quarter
financial reports in billions:
GM
Revenue
Net income
Adjusted EBIT
Source: Company reports
porters. " It's just growing at a slower pace than the
industry and, quite frankly, we expected. "
Lawler said the company is not canceling second-generation
EVs, including a three-row utility
and full-size pickup, though he declined to say how
long the company would delay its EV investments
or the battery plant.
" As demand has softened, we'll need less capacity
in the near term, so we'll push out that investment
until the time when we need to put that capacity in
place, " he said.
Ford, on its second-quarter earnings call in July, delayed
some EV production targets but vowed to continue
pushing for 8 percent margins on EVs in three years.
" Mid- to late decade, those are reasonable targets,
but that will be after a few billion dollars' worth of investment, "
Fiorani said of the margin goals for both
automakers. " If you're building 100,000 Mustang
Mach-Es and there's a natural market for 80,000 of
them, that means you have to incentivize 20,000
more, and you just lose money, " he said.
Lawler said Ford also was trying to find the right
balance on EV prices.
" There's a tremendous downward pressure in the
EV segment right now on pricing, " he said. " What
this is teaching us is that going forward, it's really a
cost game. The market leaders in EVs have the lowest
cost structure. "
$44.1
$3.1
$3.6
FORD
$43.8
$1.2
$2.2

Automotive News - October 30, 2023

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