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GM: UAW Talks Bring a Tentative Contract at a Steep Price

We wait for details or ratification to make any changes to GM’s fair value estimate; incremental labor costs may require a reduction.

Key Morningstar Metrics for General Motors

On Oct. 30, the United Auto Workers union announced it had reached a tentative contract with General Motors GM. The deal is not effective until ratified by a majority vote of GM’s approximately 46,000 UAW workers. UAW’s GM national council will meet in Detroit to vote on sending the contract to all members. There will then be local chapter meetings to discuss the deal, and a vote will eventually be held over a few weeks. The contract looks mostly similar to the tentative deals UAW has forged with Ford F and Stellantis STLA. The union has instructed GM workers to return to work during the ratification process. The strike started on Sept. 15. We expect the deal to be ratified.

The agreement has more raises than the past 22 years combined. Base wages will increase by 25% and the maximum production wage will rise by 33% including estimated cost of living increases to over $42/hour at the end of the deal. The starting wage with COLA will increase by 70% to over $30/hour. We expect that the contract, like Ford’s, includes an immediate 11% raise upon ratification. There was no mention of a ratification bonus, but we expect one of about $5,000, like Ford’s deal.

The contract also has three years to max wages instead of eight, increases for retirees including five $500 annual payouts to current retirees or spouses, and increases to current workers’ pensions and 401(k) plans. For the first time ever, the union can strike over plant closures. This means the Detroit Three will likely never close a plant again without incurring a strike. Ultium Cells workers will be brought into the master agreement, though we don’t have details on how.

Our fair value estimate for GM is unchanged for now, but incremental labor costs may require a reduction of at least $1-$4. We will wait for more details or ratification to make any changes based on this agreement, but we are increasing our 2023 earnings per share estimate by 42% to deduct $1.6 billion in EBIT from the strike instead of the $4.77 billion discussed in our Oct. 24 note.

General Motors Stock Price

Data as of Source: Morningstar Direct.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

David Whiston

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007.

Before Morningstar, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner. In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011.

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