On September 14th, a "black swan" event may impact the US stock market, and even the entire US economy.

Wall Street is eagerly awaiting the Federal Reserve's interest rate decision in September, while a "black swan" is looming.

The largest three U.S. automakers, General Motors, Ford, and Stellantis, have already voted to approve a large-scale strike if they fail to reach a new labor agreement by September 14. The demands include a 40% pay raise and a four-day workweek.

At that time, 150,000 workers, equivalent to half of the U.S. automotive industry workforce, will stop working. It is estimated that this could result in economic losses of up to $5.6 billion (approximately RMB 40.7 billion) over a period of 10 days.

As one of the long-standing pillar industries, even a temporary shutdown in the automotive industry could impact the future GDP performance of the United States. This is particularly concerning for the U.S. stock market, which is hoping for a soft landing of the economy.

With only 9 days left until the contract expires, both sides have taken a rare hard stance in negotiations, and the month-long talks are still in a tense state.

A 40% Pay Raise: UAW's "Sky-High Demand" or "Reasonable Request"?

The United Automobile Workers (UAW), the largest labor union in the United States, has a membership of 146,000 workers, accounting for 56% of the total workforce in the U.S. automotive manufacturing industry, particularly in Detroit's "Big Three" automakers: General Motors, Ford, and Stellantis.

UAW is renowned for securing high wages and retirement benefits for automotive workers.

It is reported that UAW and the "Big Three" renegotiate their contract every 4 years, and the current labor agreement is set to expire on September 14 at 11:59 PM. Since mid-July, UAW has been in negotiations with the three automakers for a new labor agreement, but substantial progress has yet to be made.

According to multiple media reports, UAW is demanding a pay raise of 40% or more from General Motors, Ford, and Stellantis. This demand is particularly crucial and significant against the backdrop of severe inflation eroding consumers' wallets.

UAW argues that during the current contract period, the average salary of Detroit automakers' CEOs has increased by 40%.

We believe that UAW members should receive the same treatment, or even more.

Based on the current wage structure, UAW members have a starting wage of approximately $18 per hour, which can increase to over $30 per hour after four years of the contract. It is estimated that if the "Big Three" agree to this demand, the starting wage for their workers will exceed $25 per hour. It is worth mentioning that compared to the previous contract, the 40% salary increase is unusually large. In the final round of negotiations that ended in late 2019, UAW compromised by obtaining two 3% salary increases and a one-time payment during the contract period.

UAW requested to reduce the weekly working hours from 40 to 32, equivalent to a four-day workweek. In addition, UAW also requested the "Big Three" to restore traditional pensions, increase cost-of-living expenses, and enhance retirement benefits for retirees, among other things.

According to media reports, if the above requests are met and other benefits remain unchanged, the hourly labor cost of the "Big Three" will more than double, increasing from at least $64 per hour to over $150 per hour.

Earlier, Bloomberg reported that the demands put forward by UAW would increase the labor costs of the "Big Three" by over $80 billion during the contract period.

Kristin Dziczek, an automotive policy advisor at the Chicago Fed's Detroit branch, wrote in a recent blog post:

People may think of these UAW contracts as three large procurement orders aimed at ensuring the labor force needed to assemble future vehicles, parts, and components, with a total value of approximately $7 to $80 billion over the next four years.

Currently, the U.S. automotive industry is going through the pains of transitioning to electric vehicles, facing increasingly fierce market competition and high costs. Some analysts believe that if the "Big Three" agree, it would be "tantamount to suicide."

The "Big Three" also believe that UAW's demands are excessive.

Mark Stewart, Chief Operating Officer of Stellantis North America, bluntly stated that UAW's demands are "outrageous" and could lead to job losses. Stellantis threatened to move production of the Ram 1500 from suburban Detroit to Mexico.

In a recent statement, Ford proposed a 9% salary increase with a one-time payment, which would result in a 15% increase in workers' income over the four-year contract period, a far cry from UAW's demands.

In response, UAW President Shawn Fain stated that the one-time payment would help address workers' short-term difficulties but would not significantly improve their long-term income.

In addition, UAW and Ford also have differences regarding bonuses, temporary worker employment, inflation, retiree healthcare, and other issues.

A strike seems inevitable, with Stellantis at the forefront

"As a union and labor people, this is our moment of decision," Fain said in a Facebook Live event in July.

UAW has filed lawsuits against General Motors and Stellantis with the National Labor Relations Board, **accusing these two companies of not negotiating in good faith. **

As negotiations continue to deteriorate, strikes seem increasingly inevitable.

A brief survey conducted by Morgan Stanley with 99 investors found that 58% of respondents believed that a strike was "highly likely" to occur, 24% said there was "some possibility," and only 16% said a strike was unlikely.

Unlike previous union leaders, Fain chose to negotiate with all three automakers simultaneously instead of focusing on one target company.

Fain has also taken a more aggressive stance towards the car manufacturers, sometimes launching personal attacks against executives. It is reported that Fain once threw a copy of Stellantis' proposal directly into the trash can during a live broadcast.

Most notably, Fain has decided not to support UAW's long-time ally, President Biden, for re-election until he addresses UAW's concerns about the transition to electric vehicles in the automotive industry.

Fain has consistently stated that he will do "whatever it takes" to ensure fair treatment for members.

Therefore, some industry analysts and experts believe that one or even multiple rounds of strikes are imminent.

Art Wheaton, a labor professor at Cornell University's Worker Institute, said:

I expect a strike to happen.

I think they have a reasonable chance to first target Stellantis and then give Ford and GM a few days to come up with better offers.

In the first half of this year, Ford made a profit of $3.7 billion, General Motors made a profit of $5 billion, and Stellantis made a whopping €11 billion (approximately $11.9 billion) in profit. In response, Harry Katz, a labor relations professor at Cornell University, said that the "Big Three" automakers' substantial profits have bolstered UAW's confidence.

He said:

The car companies have made substantial profits due to stable sales, so if the auto workers go on strike, the car companies will suffer significant losses.

Wheaton believes that launching an "attack" on Stellantis first is almost a certainty because the differences between the two sides are too great. He said that UAW can also use this strike as a warning to General Motors and Ford.

The key question is, how long will the strike last if it happens?

Morgan Stanley found that among the surveyed investors, the vast majority (96%) expected the strike to last for more than a week, and over a third (34%) anticipated it to last for more than a month.

UAW has a strike fund of over $825 million to support eligible members on strike. It is reported that each member will receive a strike allowance of $500 per week, nearly double the $275 per week from last year. According to the union's official website, UAW members can receive strike benefits after the eighth day of the strike, and bonus checks will be issued one week in advance for Thanksgiving and Christmas. They can also seek external employment, but if their weekly wages reach $500 or more, they will no longer receive strike benefits, but will continue to receive medical and prescription drug assistance.

Assuming there are approximately 150,000 eligible workers, the weekly strike benefits will amount to $75 million. Therefore, the $825 million fund can last for approximately 11 weeks. This does not include the medical expenses that the union will bear.

"Big Three" Shutdown? US Economy Impacted

If UAW decides to initiate a strike, the production of the "Big Three" may have to come to a halt, resulting in losses of up to billions of dollars.

According to AEG's estimation, a 10-day strike would cause a total wage loss of $859 million for the three major automakers, with the "Big Three" losing $989 million, including a $380 million loss for General Motors, $325 million loss for Ford, and $285 million loss for Stellantis.

Deutsche Bank estimated in a previous analysis that the strike would result in a production loss of $400 to $500 million per week for each automaker.

The automotive industry (including foreign companies operating in the United States) accounts for approximately 3% of the US GDP. As one of the long-standing pillar industries, a strike by half of the industry's workers will not only cause significant losses to the "Big Three" but also impact the economic performance of the United States in the near future.

An analysis by the Anderson Economic Group (AEG), a labor strike research think tank, shows that the strike by nearly 150,000 UAW members at General Motors, Ford, and Stellantis will result in an economic loss of up to $5.6 billion after 10 days.

Patrick Anderson, CEO of the company, stated, "Even a brief strike will have an impact on the economy of Michigan and the entire United States."

In the final round of labor negotiations in 2019, UAW chose General Motors as the primary negotiating target, but the negotiations ultimately broke down, leading to a nationwide strike by nearly 50,000 General Motors workers for 40 days.

According to General Motors, this strike resulted in a loss of $3.6 billion for the company that year.

It is worth mentioning that the inventory levels of US automakers are much lower than four years ago, and coupled with the fact that the automotive industry has not fully recovered from the supply chain issues caused by the pandemic, this strike may have more severe consequences for the industry.

According to an investor report from SuMi Trust Americas, a 10-week strike is expected to result in a production loss of 1.5 million vehicles. In comparison, the 2019 strike resulted in a loss of 300,000 vehicles in production.

Cox Automotive, the largest automotive O2O trading platform in the United States, stated that during the labor negotiations in 2019, the US automotive supply was 3.73 million vehicles, which was basically enough to sustain 86 days of sales under normal conditions at that time. Currently, the industry inventory is close to 2 million units, which can only sustain 56 days of sales supply.

Anderson recently stated in a webinar hosted by the Automotive Press Association:

The market was quite weak in 2019.

During the first week of a strike, the inventory situation of every automaker would start to deteriorate.