United Auto Workers employed at
General Motors
appear to have ratified a new labor deal that will run through April 2028.
It’s good news. The stock reaction is awful though.
The Detroit Free Press reported earlier on Thursday that the vote is essentially complete. The UAW vote tracker, which is available to anyone to follow on the UAW website, has the ‘yes’ votes at about 19,700 and the ‘no’ votes at about 16,300.
GM
has more than 36,000 UAW-represented workers, but the Free Press said Union officials said it is safe to call the deal done.
The UAW didn’t respond to a request for comment about the voting process. GM declined to comment.
Some votes might not be on the tracker yet. And not everyone has to vote. There were apparently deadlines to get ballots in. The UAW and GM didn’t respond to requests for comment about deadlines.
GM (ticker: GM) was the last of Detroit’s Big Three auto makers to get a deal, but it’s the first to have ratification reported. That comes down to the companies. Each deal is a little different and each union local has to run their process. Vote tallies at
Ford Motor
(F) and
Stellantis
(STLA) indicate that ratification is virtually assured.
The victory margin at GM has been narrower, sparking concern by some that the deal might not go through, with only 54% voting ‘yes.’ The percentage of those voting yes comes down to different worker populations feeling differently about various provisions in the contracts. Temporary workers won a lot in the new contract. Older workers might have preferred more retirement benefits.
None of that matters with ratification. A new contract is good news. It removes an overhang on GM stock. Investors can be forgiven if they don’t feel great. GM stock is down 2.4% on Thursday while the
S&P 500
was flat and the
Dow Jones Industrial Average
was down 0.3%.
That’s a signal that labor is only one factor weighing on GM stock. High interest rates, slowing EV demand, and a slowing global economy also matter.
Investors might also be worried that the new labor deal will hurt profit margins. It might, but costs are going up across the industry, including at non-union auto makers.
What’s more the stock has been hammered. Since the start of July, when labor issues started to impact investor sentiment, GM shares are down 28%. The stock has, obviously, fluctuated, but recent losses mean that shares have gone nowhere for more than a decade. And all the gains of 2021, when shares traded above $60, have evaporated.
GM needs to help turn sentiment around with good old-fashioned business execution. What investors should expect to hear from GM, Ford, and
Stellantis
is how to offset some of the coming labor-related cost inflation. That can take the form of worker buyouts, redesigns, or supplier givebacks.
They should also expect to hear about how GM plans to grow EV sales profitably in a tough market while defending its share in the traditional car business.
Investors don’t seem to be holding out much hope. GM shares trade for about 4 times estimated 2024 earnings. If GM did nothing to offset higher labor costs in 2024, earnings might be reduced by $1.50 a share, according to Barron’s math. Then shares would be trading at about 5.5 times estimated 2024 earnings. That isn’t a big valuation multiple, either.
Write to Al Root at [email protected]
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