Tue. Sep 26th, 2023
    Strike by United Auto Workers Raises Concerns for Corporate Profits

    The ongoing strike by the United Auto Workers (UAW) against the Big 3 carmakers – Ford Motor Co., General Motors Co., and Stellantis NV – is causing worry among stock-market investors regarding the future of corporate profits. If the strike expands, it is anticipated to have an impact on the broader economy, supply chains, and corporate profit margins, according to Mark Hackett, the chief of investment research at Nationwide. The UAW set up picket lines at all three automakers’ facilities simultaneously, with workers walking out of a Ford factory in Michigan, a Stellantis Jeep factory in Ohio, and a GM pickup factory in Missouri. This strike action has the potential for further disruptions at other facilities.

    The stock market reacted negatively to the strike, with the S&P 500 and the Dow Jones Industrial Average experiencing declines of 1.1% and 0.8% respectively. The Nasdaq Composite also shed 1.6% amid concerns over the strike’s impact on corporate profits.

    The UAW initially demanded a 40% wage increase over four years but has now shifted its focus to a raise in the mid-30% range. This strike is occurring in the midst of other labor disputes, including the ongoing strike by film and television writers. The tightness in the job market and rising wages could potentially pose challenges to corporate margins. Labor issues, such as strikes in Hollywood and the airline industry, may act as headwinds to profitability.

    In addition to immediate concerns, there is a broader risk of disruption to the economy. Currently, approximately 13,000 UAW members are on strike at the three targeted plants. While the impact on overall GDP is projected to be limited, the strikes could result in production backlogs and supply shortages, leading to price increases. This could have implications for inflation and further impact corporate profit margins.

    It is important to note that corporate margins reached a peak two years ago but fell for six consecutive quarters due to the pandemic. However, margins have started to rebound over the past two quarters, indicating some recovery in profitability. Nonetheless, the ongoing labor strikes and potential supply chain disruptions may hinder the anticipated earnings growth in the coming years.

    Sources: Deutsche Bank, MarketWatch