Auto Workers Walkout Could Cost $5 Billion In Losses To Economy, Study Predicts

It's never a good sign when the head of a union not only refuses to shake hands with his counterpart at the start of contract negotiation, but then later takes a contract proposal and tosses it in the trash. That's exactly what UAW President Shawn Fein did, trashing both the traditional opening handshake with the Detroit Three automakers and later, the proposal by Stellantis, the automaker that owns the Jeep, Dodge, Ram, Chrysler and Fiat brands, by tossing it in a trash can during a Facebook Live webcast to UAW members.

“The idea of not doing a handshake, instead taking the proposal and sticking it in the trash—sure it's a stunt but that's pretty harsh and I think there's a penalty for that,” said Patrick Anderson, principal and CEO at Anderson Economic Group, during a web meeting of the Automotive Press Association.

The total economic penalty could be $5 billion after 10 days if the UAW went on strike against General Motors Co., Ford Motor Co. and Stellantis if there's no tentative agreement when their contracts expire at 11:59 p.m. on September 14, according to an AEG analysis.

Breaking down that big number, AEG estimates a 10-day strike would result in total wage losses of $859 million and manufacturer losses of $989 million. Using Ford as an example, AEG estimates if only one automaker suffered a strike-related shutdown it could cause $665 million in losses during that period—a $341 million loss in direct wages and $325 million in company-wide losses.

Looking at direct impact to each of the Michigan-based automakers by the loss of 10 production days, AEG estimates GM would lose $380 million, Ford, $325 million and Stellantis, $285 million.

Of course, any production shutdowns have far-reaching effects beyond the automakers.

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“You do have suppliers, you have manufacturers, you got the truckers, etc. that are working on this. There's also losses here,” pointed out Anderson.

The last time UAW workers staged an extended strike was the 42-day walkout against GM in 2019. But a lot of things have changed since then, in large part caused by the Covid-19 pandemic leading to production shutdowns and supply chain interruptions.

Indeed, production is still not up to pre-pandemic levels, leaving automakers with “about one-fifth of the inventory that was on-hand in 2019, so a strike in current conditions would likely affect dealers and customers much sooner,” observed Tyler Theile, vice president at AEG.

Another big difference is that four years ago electric vehicles were a scant 2% of the U.S. market primarily from Tesla. EV sales now represent about 7% of the U.S. market as more automakers jump into the segment, and that poses another unique economic dilemma in the event of a strike since the Detroit 3 essentially lose money on each EV since production costs are so high.

“We've never had a substantial portion of automakers essentially losing money on every vehicle they made,” Anderson observed. “To some degree, depending on how you count it, GM and Ford would actually save money by shutting down the EV production, so this is a dynamic here that's different than what we had before and actually it's really unprecedented.”

In a broader economic sense, the U.S. auto industry is so far-flung that a shutdown of any length has the potential to affect the gross domestic product of individual states with high concentrations of automotive-related facilities and workers.

Again, a lesson learned from the 2019 GM walkout.

“In 2019, it literally drove Michigan GDP negative. That was quite striking to see that, and that's even though the strike settled and then these workers knew before the end of the fourth quarter they were getting big bonus checks,” said Anderson.

A harsh reality for both union members who work for the Detroit 3 and the automakers themselves is that with so many other automakers producing vehicles in North America, including those based in other countries as well as Texas-based Tesla, consumers looking for a new ride don't have to wait for a walkout to end.

As Anderson noted, “there are plenty of opportunities for consumers to go elsewhere.”

That could be the biggest loss of all.