Why Detroit’s Big Three are fighting to dominate the next generation of the car industry
Many of the key concerns in the labor dispute between the United Auto Workers and the Big Three US automakers are well-known: wage raises, sick days, and pay grades.
While most of the focus has been on those important concerns, a significant undercurrent of the debate is the shift away from automobiles and trucks powered by internal combustion engines — those that operate on gasoline and motor oil. The transformation, which might be the greatest in the auto industry’s history, has significant repercussions for the company and its employees.
According to manufacturers in the United States, about 14 million new automobiles and trucks will be sold in 2022. According to the Bureau of Transportation Statistics, hybrid and all-electric car sales surpassed 1 million for the first time that year.
This is a significant achievement, but it also demonstrates that the transition to EVs is still in its early stages.
Obviously, current concerns such as worker wage are at the forefront of the discussions. The existing contract between the UAW and the Big Three ended Thursday at 11:59 p.m., and the UAW union went on strike. Around 13,000 UAW members walked out at three manufacturing plants: one for Ford, one for General Motors, and one for Stellantis.
It’s the first time the 88-year-old UAW has gone on strike against all three firms at the same time, and it warns that if a solution isn’t struck quickly, more employees will walk off the job.
Since the latest deal was signed in 2019, yearly gross earnings at Ford and General Motors have increased by 34% and 50%, respectively. Stellantis, which was created in 2021 after Fiat Chrysler combined with the French carmaker Peugeot, claimed a 19% increase in yearly gross profit from 2021 to 2022.
The UAW wants the new contract to reflect that increase — and, by extension, CEO pay growth. According to UAW president Shawn Fain, the new contract should also address the consequences of inflation in the United States.
“I don’t think anyone would argue that the union and its members should participate in a healthy environment of higher profits for automakers,” said Jeff Schuster, GlobalData’s global head of automotive. Schuster went on to say that the car business had “massive earnings because prices were up” at the peak of the epidemic.
Profit growth of this magnitude may heal a variety of ailments, and the Big Three have agreed to boost their workers’ wages. Despite their large revenues, the corporations, according to Schuster, are in a difficult situation.
The Big Three of Detroit face an uncertain future.
As EVs become more prevalent, GM, Ford, and Stellantis will need to construct and renovate manufacturing facilities, do more research and development, educate more personnel, and acquire new raw materials, all while developing new car and truck models.
Building an auto factory is a costly endeavor, and there are certain to be hiccups and errors along the way.
Meanwhile, the Big Three have a fresh opponent who is already doing a fantastic job at it all.
“I think everyone is trying to catch up to Tesla,” Schuster remarked.
According to Erin McLaughlin, senior economist at The Conference Board specializing in transportation and infrastructure, the UAW is attempting to figure out what that would entail for current and future union members.
“A lot of the Big Three are opening EV plants in the Sun Belt, which are less pro-union states and where foreign companies have put their plants,” McLaughlin said. Because this may undermine the union, it functions as a cost-cutting technique.
Ford, GM, and Stellantis have all teamed with South Korean corporations to establish EV battery manufacturing operations. Jobs in these facilities are non-union and pay less. The UAW claims that this must be addressed in the next contract, not least because more employees will be required in those factories in the future years – and fewer will be needed to make cars and trucks.
While union members are inclined to demand the highest salary increases possible, Schuster claims that the Big Three are mostly competing against non-unionized enterprises, whose employees earn less. Tesla is the only automotive firm in the United States without a labor union.
If automakers conclude that they are paying too much for labor, they may shift additional employment abroad, throwing U.S. workers out of work.
Both of these issues are cause for worry for the union, since they may undermine its membership or negotiating strength over time. McLaughlin attributes this to a nationwide trend of declining union membership.
“One of the reasons for these labor discussions now is a shrinking employee labor base, and we’re seeing an increase in manufacturing at the same time we’re seeing low unemployment,” she said.
According to Schuster, the discussions have become even more challenging since new automobiles and trucks have become more costly in recent years. According to Kelly Blue, the average transaction price for a new car in July was $48,334. EVs are also more costly, owing to the enormous batteries that power them.
The research and construction of electric cars, as well as the facilities and infrastructure required to scale up production, reduces manufacturers’ earnings, but passing the cost on to consumers may be difficult given recent price increases.
“It really comes down to how much more you can add to the price of a vehicle in an environment where consumers are already struggling with vehicle pricing,” he added.