Why Detroit 3 automakers' EV futures ride on UAW deal

As the UAW strike enters its third week, the Detroit 3 have more to fear than the immediate financial pain of plants going down. The worry also runs deep for states reliant on these automakers and the drive toward electric vehicles.

The deals that Ford Motor Co., General Motors and Chrysler parent Stellantis eventually make with the UAW will go a long way toward determining their electric futures, according to industry experts.

The UAW wants a raise and a boost to benefits reflecting the record profits they have helped the automakers earn in recent years. The companies want a deal that doesn't chain them to labor costs that cripple their competitiveness with EV maker Tesla, transplant automakers and fast-rising EV startups such as Rivian.

The two sides continue to feud as the strike expanded to more facilities on Friday.

"This is a defining period for Detroit and the future of the auto industry as we firmly believe that if GM, Ford, Stellantis accept anything close to the deal on the table the future will be very bleak for the U.S. auto industry," Dan Ives, managing director at Wedbush Securities, said Wednesday in a research note to clients.

Hiking wages, ending tiers and restoring cost-of-living benefits are sticking points that spurred the strike, but the overall stakes are much higher. The wrong deal could sink the automakers — and as the industry goes, so goes the Rust Belt. That's why states such as Michigan and Illinois, some of which have massive down payments on new EV battery plants, are watching the strike play out with their economic futures at the forefront.

UAW President Shawn Fain has demanded wage raises of more than 40 percent over a four-year contract, roughly in line with what pilots have negotiated with major U.S. airlines. He points to billions of dollars in profits and the massive salaries of CEOs as he attempts to claw back concessions made by the union during the industry's bankruptcy era.

Fain has plenty of data to support his push. Stellantis made $18 billion in net income last year and GM took in $10 billion. While Ford's bottom line took a hit, it recorded $18 billion in net income in 2021.

Meanwhile, company executives have reaped rewards. The highest paid of the trio is GM CEO Mary Barra, who took home a pay package worth just less than $29 million in 2022 — 362 times that of the median GM employee. At the same time, UAW pay has stagnated, with autoworker pay topping out at $32 per hour after annual increases of 3 percent since 2019.

President Joe Biden visited a picket line in metro Detroit last week to deliver this message to UAW members: "You deserve what you've earned, and you've earned a hell of a lot more than what you're getting paid now."

Automakers don't disagree a raise is in order for their 150,000 UAW-represented workers. The problem is the size of the ask, said Glenn Stevens, executive director of MICHauto, a nonprofit launched in 2007 to grow Michigan's auto industry.

"From their perspective, they can't let the labor situation drive costs up too much," Stevens said. "There's a lot of pressure on them to make sure that they're able to fund that and control all of their costs as they try to win market share in the burgeoning EV market."

The automakers and the union have to balance yesterday's financials with tomorrow's needs.

"Last year was the peak year for the production of internal combustion engines in this country," said Daron Gifford, a senior partner in Plante Moran's mobility practice in metro Detroit. "It's already declining. It's just a matter of how fast does it decline. The long-term for the UAW is the next negotiating cycle. In four more years, there's going to be a lot of plant closures. There's going to be consolidation."

EVs have 30 to 40 percent fewer parts than internal combustion engine vehicles, which will reduce the amount of labor needed by carmakers, but Gifford said new jobs created by EVs should offset those lost jobs. As transmission and engine plants go extinct, more domestic manufacturing of EV-related parts, such as batteries and electric-drive components, will bring more jobs to the country. Automation will eliminate some jobs but create others in maintaining equipment.

"The overall number of workers — if you go all the way down through the supply chain — probably looks about the same," Gifford said.

Still, Donald Trump and others have played to the fears of job losses because of the Biden administration's push for more EVs. Trump, campaigning for a second term as U.S. president, spoke to supporters at a nonunion auto supplier in Macomb County last week, trying to win over blue-collar voters.

Trump told supporters EVs would "spell the death of the U.S. auto industry" because they cost too much and consumers don't want them.

Automakers are trying to catch a falling knife with one hand and reach for the stars with the other.

"EV volumes are going to increase pretty dramatically," Gifford said. "This is where all the OEMs' capital spending is going because they're playing catch-up to Tesla on EV technology. Some of the money the UAW wants … is going to take away from (automakers') ability to invest. That's a problem."

Tesla, headquartered in Texas, already has a significant cost advantage over the Detroit 3, as do foreign automakers. Ford, GM and Stellantis pay $66 an hour in wages and benefits per worker, according to industry data compiled by the Federal Reserve Bank of Chicago. That's compared with about $55 for nonunion carmakers, with Tesla believed to be as low as $45.

If the Detroit 3 meet the UAW's demands, labor costs would soar to $136 per employee, costing the companies up to $8 billion each, according to an analysis by Colin Langan with Wells Fargo. Taking a deal as it stands now would drive up the price of an EV by $3,000 to $5,000, Wedbush estimates, at a time when new cars are already unaffordable to many and as automakers struggle to make money on EVs.

"This is … an almost impossible decision that could change the future of the Detroit automakers in our view," Ives said. "Let's be clear: This is a growing nightmare situation."

The stakes are high in the Rust Belt because, despite years of southern migration by auto companies, particularly Asian and European brands, the Midwest still has the highest concentration of autoworkers in the country. Michigan, Indiana and Ohio have twice as many auto jobs — 333,780 last year, according to Bureau of Labor Statistics data — as Tennessee, Kentucky and Alabama. Together, Michigan, Indiana, Ohio and Illinois accounted for 45 percent of auto manufacturing jobs nationwide last year.

In communities across the Midwest, the question of whether they'll remain auto manufacturing hubs beyond the next contract looms large in current negotiations. Automakers are deciding which communities will make EVs, batteries and other critical parts.

The fate of plants such as the Stellantis factory in Belvidere, Ill., which made Jeep Cherokees until it was idled in February, is among those up in the air. Whether it becomes a giant parts distribution center or a site that makes EVs is expected to be determined in this contract cycle.

"That is the question — what, when and how many," said Matt Frantzen, president of UAW Local 1268, which represents about 1,300 workers at the Belvidere plant.

Chris Pena, president of UAW Local 551 at Ford's assembly plant on the south side of Chicago, calls EVs "the elephant in the room" during negotiations. "It's inevitable," he said of the shift to EVs.

Workers at the Torrence Avenue plant in Chicago, which makes hybrid Ford Explorer and Lincoln Aviator large crossovers, already are experiencing it.

"We've been transitioning for some time," Pena said. "We know the EV market is the next step. It will drastically change our work … to jobs that are more technical. Wages need to reflect it."

The UAW has demanded a "fair and equitable transition" to EVs and has been clear about its desire to organize the battery factories cropping up around the U.S. in the heavily subsidized push to re-shore manufacturing. In most cases, those plants are owned by a joint venture with an Asian battery maker and not subject to the union's national contracts with the Detroit 3.

"I would say that EV is the principal driver of what's going on with these discussions," said Marick Masters, a business professor at Wayne State University in Detroit who specializes in labor. "I think you're going to see significant job losses. I think that companies are taking advantage of the situation in knowing that producing EVs is much more labor efficient."

Ford brought the issue front and center last week when it said it would pause construction of its planned $3.5 billion battery plant in Marshall, Mich. The plant, which is to be wholly owned by the Dearborn, Mich., automaker with a licensing agreement with Chinese giant CATL, had been eyed for organizing almost as soon as it was announced.

Ford said it was "pausing work and limiting spending" until it felt confident about operating the plant "competitively." Michigan Gov. Gretchen Whitmer and the Michigan Economic Development Corp., which facilitated around $1.7 billion of incentives for the project, indicated they hope the project will resume once Ford makes a deal with the UAW.

Some look at the automaker's move as a shrewd bargaining strategy. With Ford appearing to edge closer to a deal than its competitors, the company could be using the plant as leverage against further UAW demands. Fain didn't mince words with his opinion on the decision, calling it "a shameful, barely veiled threat by Ford to cut jobs."

On Friday, after the UAW expanded its strike, Ford CEO Jim Farley accused the union of "holding the (contract) deal hostage over battery plants," and that despite progress made in other areas, the two sides are clashing on EVs and battery plants.

Ford announced the pause in Marshall on the eve of Biden's visit to metro Detroit picket lines and as the federal government is poised to clarify rules on whether "foreign entities of concern" such as China can participate in federally subsidized EV manufacturing. That decision will have far-reaching consequences.

Michigan and Illinois have hundreds of millions of dollars in incentives riding on battery plants by Gotion High-Tech, often criticized for its ties to the Chinese Communist Party. Gotion plans a $2.4 billion EV battery parts plant near Big Rapids, Mich., that executives said they hope will remain nonunionized and that some locals are wary of for its ties to China. The Republican Party of Illinois has alleged that the $2 billion EV battery plant scheduled to open next year in downstate Manteno, Ill., is really a front for Chinese communists to spy on key U.S. military installations.

Ford's EV battery factory pause could be more than a ploy, said Erik Gordon, business professor at the University of Michigan. "Ford is probably rerunning the numbers and is figuring out, what do the economics of a battery plant in Marshall look like if it is a UAW plant at the new pay scale that we're facing, and no temp workers, no tier workers … The economics of that plant might look very different than the economics that were projected six months ago."

Kurt Nagl is a reporter for Crain's Detroit Business and John Pletz is a reporter for Crain's Chicago Business. Both publications are affiliates of Automotive News.