General Motors pushes back on UAW demands as labor pains grow

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General Motors Company (NYSE:GM) is trading shots with the United Auto Workers as the negotiations begin in earnest ahead of the September 14 expiration of the current four-year labor contract. The company said it expects to offer unionized workers higher wages, but warned that granting the United Auto Workers' contract demands for large pay rises would hurt its ability to make sound business decisions.

The UAW is reported to be pushing for at least a 40% pay increase over the four-year contract, which would include a 20% jump in wages from the start. Stellantis (STLA) is the lead negotiator with the UAW, but the union has also presented demands to General Motors (GM) and Ford Motor (F).

The UAW wildcard has made it a little tougher for investors to weigh financial and valuation metrics on GM. Alongside its Q2 earnings report, General Motors (GM) raised its 2023 outlook and now expects adjusted EBIT of $12B to $14B vs. a prior range of $11B to $13B. The Detroit automaker also boosted its outlook for adjusted EPS and free cash flow. However, those numbers were pushed out ahead of a new UAW labor contract and do no represent the cautious outlook from GM's C-suite. "Despite the raise, GM continues to assume a weaker 2H, mainly on the assumption that pricing could lose steam and as the EV rollout will weigh on earnings," warned Bank of America analyst John Murphy. He reminded that EVs do not have the same profitability as ICE vehicles, and General Motors (GM) expects incremental launch costs. Of note, GM management also announced an additional ~$1B cost reduction initiative to offset higher depreciation costs. Crucially, GM's updated guidance also did not include potential disruptions that could arise from a UAW strike.

General Motors' statement on the UAW demands: "The breadth and scope of the Presidential Demands, at face value, would threaten our ability to do what’s right for the long-term benefit of the team. A fair agreement rewards our employees and also enables GM to maintain our momentum now and into the future. It’s an exciting time to be part of GM, as our entire manufacturing team can benefit from leading in the EV transformation. We think it’s important to protect U.S. manufacturing and jobs in an industry that is dominated by non-unionized competition."

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