Stock Market Reaction
Despite the good news of the United Auto Workers (UAW) members approving the new contract, the stock market’s response has been less than favorable for General Motors (GM).
Voting Results
The Detroit Free Press announced earlier today that the UAW vote is essentially complete. As of now, there have been approximately 19,700 ‘yes’ votes and 16,300 ‘no’ votes, according to the UAW vote tracker available on their website. Although GM has over 36,000 UAW-represented workers, union officials are confident in calling the deal done.
UAW Response and GM’s Stance
When approached for comment about the voting process, the UAW did not respond. Similarly, GM declined to make any remarks.
Voting Process Clarification
It’s important to note that there might be some votes that have not yet been reflected in the tracker, as well as the fact that not every UAW member is required to vote. Deadlines were put in place to ensure timely submission of the ballots, but no comments were provided by either the UAW or GM about these specific deadlines.
GM’s Position in Comparison
GM was the last of Detroit’s Big Three automakers to reach an agreement, but it is the first one to report ratification. This variance can be attributed to each company having its own unique deal, and each union local following its own process. Vote tallies at Ford Motor and Stellantis indicate that ratification is highly likely.
Concerns Surrounding the Victory Margin
While the new contract has been approved, some expressed concerns due to the relatively narrow victory margin at GM. Only 54% of votes were in favor of the agreement. This disparity is a result of different worker populations having varying opinions on specific provisions in the contracts. Notably, temporary workers have gained substantial benefits in the new contract, while older workers may have desired increased retirement benefits.
Implications of Ratification
Despite these concerns, the ratification of the new contract is undoubtedly positive news. It eliminates uncertainties surrounding GM’s stock performance. However, it is understandable if investors still harbor some reservations. On Thursday, GM’s stock declined by 2.4%, while the S&P 500 remained flat and the Dow Jones Industrial Average experienced a 0.3% decrease.
Labor, Interest Rates, and Global Economy Weighing on GM Stock
Labor concerns, along with other factors such as high interest rates, slowing electric vehicle (EV) demand, and a slowing global economy, are having an impact on GM stock. Investors are increasingly worried that the new labor deal could have a negative effect on profit margins. However, it’s important to note that costs are rising throughout the industry, affecting both union and non-union auto manufacturers.
GM Shares Face Significant Decline
Since the beginning of July, when labor issues began to impact investor sentiment, GM shares have experienced a significant decline of 28%. Although there have been fluctuations, recent losses have resulted in shares remaining stagnant for over a decade. Despite positive gains in 2021, with shares trading above $60, these gains have now disappeared.
GM’s Strategy to Offset Labor-Related Cost Inflation
GM needs to restore confidence among investors through effective business execution. It is expected that GM, Ford, and Stellantis will share their plans to counteract the expected labor-related cost inflation. This can be achieved through worker buyouts, redesigns, or negotiating concessions from suppliers.
Additionally, investors anticipate hearing about GM’s strategy to increase profitable EV sales in a challenging market while also maintaining its share within the traditional car business.
Limited Investor Confidence
Investors do not appear to have significant optimism for GM’s future. Currently, GM shares are traded at approximately 4 times estimated 2024 earnings. If no action is taken to mitigate higher labor costs in 2024, earnings could potentially be reduced by $1.50 per share according to analysts’ calculations. Consequently, this would bring the valuation multiple to about 5.5 times estimated 2024 earnings, which is still relatively low.