The UAW may attack more plants today. Location is key.

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The UAW threatens to expand your strike on Friday against the big three automakers

General Motors
,

Ford engine
,

and parent company of Chrysler

Stellar
,

and many observers assume it is a done deal. If the union paralyzes high-profit assembly plants or high-volume powertrain plants, it means that the labor confrontation is entering a new and tough stage.

The UAW began a limited strike, at one facility per automaker, on September 15. Union leaders say more workers will go on strike on Friday if substantial progress is not made in negotiations. ‘Expansion at this point seems almost a certainty,’ says Wedbush analyst Daniel Ives.

Reference analyst Mike Ward He also expects an expansion of strikes, but says investors should keep an eye on which factories are idle. He says there is likely one more plant per automaker. If the strike expands to larger plants with more workers and key products, it is a sign that the union is unhappy and looking to inflict more financial pain on automakers.

Facilities like GM Fort Wayne, Indiana The plant that manufactures Chevrolet Silverados is key to take into account. This is Stellantis Sterling Heights assembly plant in Michigan that makes Dodge Rams pickup trucks. Ford has a very profitable truck floors in Dearborn, Michigan, and Kansas City, Missouri.

Idling one of these plants would be a blow to automakers. However, if the union really wants to hurt an automaker, it could shut down a powertrain plant that supplies multiple assembly plants and shut them all down.

The UAW did not respond to a request for comment on its strike expansion plans.

Analysts Ives and Ward believe expansion is inevitable in part because the two sides appear so far apart and are speaking firmly. UAW President Shawn Fain has literally destroyed the proposals of the car manufacturers. GM President Mark Ruess wrote and opinion article in Wednesday’s Detroit Free Press saying, “The flow of misinformation is not fair to anyone.”

As for actual supply and demand between the two parties, the UAW is calling for wage increases in the order of 40% over the life of the contract, along with a shorter work week, with no pay reduction, as well as improvements in work. retirement rules and benefits.

Auto companies are currently offering salary increases of approximately 20% plus additional adjustments for cost of living increases. There have also been some concessions on labor standards and retirement funding.

The difference between 20% and 40% seems large, but with adjustments for cost of living, the difference could be 2% per year on average. That seems less daunting and some of that can be overcome with greater profit sharing, Ward suggests.

Whether profit sharing will cut the Gordian knot and whether the two sides are getting closer is not the only thing at stake. The strike is a way for the union to “get everyone on the same page after a very dark time at Solidarity House,” says the DataTrek co-founder and former automotive analyst. nicolas colas.

The UAW, whose Detroit headquarters is called Solidarity House, is reaching out to its members, not just auto companies. The credit crunch, GM’s bankruptcy and foreign competition have been tough on the industry. Wages, excluding profit sharing, between 2009 and 2019 rose about 1% annually on average, according to the Federal Reserve, while the Big Three’s share of the U.S. market rose from about 45% to 40%. %.

Companies were “chasing a ball down the hill,” Ward says. A smaller proportion meant plant closures that angered the union. Now Ford and GM plan to regain share in electric vehicles, especially in the truck and commercial fleet markets.

Higher labor costs could impact its ability to gain share in electric vehicles, but headline wage gains don’t necessarily equate to cost increases. Car companies have offered early retirements, which has helped bring in workers at the lower end of the pay scale.

Current negotiations are like a complicated game of Risk with feints, distractions and subterfuges. Investors should not get too discouraged or get too carried away by the process. “There is always an end, but in this case maybe not for a while,” says Colas.

Shares of Ford and GM have fallen about 19% and 15%, respectively, since early July, when labor problems began to weigh on investor confidence. He

S&P 500

has fallen approximately 2% in the same period. Stellantis stock is up about 10%, but Stellantis is still a cheaper stock. Stellantis stock is trading for less than 4 times estimated 2024 earnings. Ford and GM stock are trading at less than 7 and 5 times. respectively.

Write to Al Root at allen.root@dowjones.com