The United Auto Workers (UAW) have entered into a battle with not only the Detroit-Three auto makers but also with foreign auto makers that do not have unions in the United States. In addition to this, they are confronting the issue of dividends.
A Risky Strategy
The UAW President, Shawn Fain, provided an update on the progress of negotiations with General Motors (GM), Ford Motor (F), and Stellantis (STLA) during a recent event. Fain highlighted the concessions achieved, including significant wage increases of more than 20% throughout the contract duration. To support his stance, Fain cited a recent decision by Ford.
He stated, “Billionaire Bill Ford made his own speech last week, trying to dictate what we should accept. Astonishingly, the very next day, the company announced that they would distribute an additional $600 million in dividends to shareholders this year.”
However, Fain misspoke on some details. Firstly, it’s uncertain if Ford Executive Chair William “Bill” Clay Ford Jr. is actually a billionaire. Although his family owns the Detroit Lions, Ford Jr. personally owns around 20 million shares of Ford worth approximately $230 million.
Ford did not respond to a request for comment regarding Ford Jr.’s net worth.
More importantly, there are no additional $600 million dividends as Fain had claimed. On October 17, Ford declared their regular quarterly dividend of 15 cents per share. Regular dividends are typically paid from cash flow after expenses such as worker salaries and operational costs are covered.
Declaring a regular quarterly dividend is expected and necessary for the financial health of a company. Cutting or foregoing dividends can have disastrous consequences for a stock. It signals to investors that future cash flow may not sufficiently cover dividend payments, making it more challenging for publicly traded companies to raise capital in the future.
The Trust Between Company Managers and Owners
In the world of business, there exists a fundamental relationship between company managers and owners that is built on trust. The premise is simple: if owners invest their savings in a company, they expect to receive a greater return in the future. This “greater” can come in the form of cash dividends, share buybacks, or a larger company with higher earnings.
It is worth noting that growth has its benefits for labor as well, as it can lead to the creation of more jobs.
The Importance of Dividends
It is rather absurd and even potentially dangerous to vilify dividends, especially when considering their historical significance. Dividends have been a key component of stock market returns, accounting for approximately 40% over the past century. In fact, companies have been paying dividends for centuries, establishing an effective system for business funding. Furthermore, a majority of U.S. households, around 72 million, hold stocks.
It is clear that dividends play a crucial role in the economy.
Dividends in the S&P 500
Approximately 80% of companies listed in the S&P 500 pay dividends to their shareholders. In the last 12 months alone, these companies have distributed roughly 40% of their free cash flow in the form of dividends. This equates to $600 billion out of a total of $1.4 trillion. These numbers are staggering. Additionally, these companies have collectively generated $15 trillion in revenue, out of which $1.4 trillion was earned.
A portion of these revenues goes to labor, although it does not address the question of what is fair for UAW workers in 2023.
The Role of Unions and Corporate Profits
Fain raises valid points regarding the contribution of UAW workers in helping the Detroit-Three automakers improve their competitiveness over the past decade. These automakers were struggling during the financial crisis, experiencing losses and a decline in market share. The union surely played a part in their remarkable turnaround. Industry analysts estimate that the union’s concessions have boosted annual profits by approximately $2 billion for the past decade.
While Ford Jr. argues that the fight is not against Ford but against foreign automakers who lack unions and have gained market share, Fain remains unconvinced. He firmly believes that Toyota workers will eventually join the UAW.
While targeting other automakers may make strategic sense for the UAW, attacking dividends is not the way to go.