Shares of Detroit Three fall as US workers’ strike raises profit worries

By Abhijith Ganapavaram and Nathan Gomes

(Reuters) -Strike by U.S. auto workers hit shares of Ford Motor (NYSE:), General Motors (NYSE:) and their suppliers on Friday on worries that the labor action at the factories that make some of the most profitable vehicles could hurt earnings.

The walkouts will halt production at three factories of the “Detroit Three” automakers that make Ford Bronco, Jeep Wrangler and Chevrolet Colorado pickup truck, along with other popular models.

Ford and General Motors fell 1% in early trade before reversing course, while U.S.-listed shares of Stellantis (NYSE:) were up 0.5% as hourly workers, represented by United Auto Workers (UAW) union, began their most ambitious U.S. labor protest in decades.

The escalation came as talks between the UAW and the Detroit Three are yet to result in an agreement, though executives said talks have made some progress.

Analysts said any agreement may be costly and could hobble automakers’ investment in electric vehicles.

The UAW chose to walk out at some plants instead of all, giving its hard-charging president Shawn Fain some leverage with talks over the next few days while also limiting the union cost in terms of strike pay, which is paid from an $825 million fund.

About 3,600 UAW members work at the Wentzville, Missouri assembly plant of General Motors, which makes vehicles such as the Chevrolet Colorado, GMC Canyon, and Savanna.

“Holding all-else constant (including the potential for other segments to make up lost production volume), a Wentzville strike through September would negatively impact our GM Q3 estimated EBIT by roughly 2% and Q4 by about 13%,” Citi analyst Itay Michaeli wrote in a note.

For Ford, the Michigan plant, which makes the Ford Ranger and Bronco models, Michaeli said, “we estimate a similar monthly impact from the Michigan Assembly strike at about 15,000 units or about $140 million EBIT (holding all-else equal).”

The targeted strike can also inflict “max pain” on the automakers given the profitability of SUVs and pickups, Evercore ISI said. But they can boost production to make up for lost sales if the stalemate is short lived.

The standoff has also become a political issue, with President Joe Biden, facing re-election next year, calling for a deal.

The union has not endorsed Biden’s re-election. His administration is pouring billions in federal subsidies into expanding sales of electric vehicles, but EVs require fewer jobs.

Some analysts see Stellantis as better placed to face the strikes as it is “the most profitable one” among the Big Three.

“It could leverage on a lower break-even point as well as on higher inventories days than GM and Ford,” said Monica Bosio, an analyst at Intesa Sanpaolo (OTC:).

Since the contract talks began in mid-July, U.S.-listed shares of Stellantis have risen about 2%, while Ford and GM shares have fallen about 17% each.

Meanwhile, shares of auto suppliers that supply to one or all of the Detroit Three automakers were also down. American Axle (NYSE:) & Manufacturing, Dana Inc and Adient (NYSE:) fell about 1% each before recouping losses.

Supplier Magna International (NYSE:) said on Friday it was monitoring the situation and was prepared to temporarily scale back production if needed.