On September 14th, 2023, the United Auto Workers or UAW announced strikes which crippled production at the big three Us automakers GM Ford and Stellantis, previously known as Chrysler. The UAW complains that their 150,000 members have seen stagnant wages over the past decade which have not kept up with inflation. They are demanding a 40% wage increase, a 4-day work week, cost of living adjustments, greater job security, and defined benefit pension plans Ford CEO Jim Far said that accepting the Union's demands would bankrupt the company, as it would be impossible for them to compete with non-unionized automakers. The domestic cost of labor for the big three automakers currently sits at $64 per hour.

Non-unionized automakers like Tesla have an estimated labor cost of $50 per hour. The Uaw's demand would increase the cost to $150 per hour, more than triple their non-union competitors. At the same time, the Big Three need to spend tens of billions of dollars to transition into electric vehicles. Over the coming years, they've been planning to use the profits from their internal combustion engine cars to fund this transition, but if they agree to the Union's demands, even their internal combustion engine Vehicles will lose money.

But the union refuses to back down and has categorically rejected counter proposals from the automakers. In this video, we'll look at the existential threat the UAW poses to the Big three automakers and how this plays to the benefit of non-unionized EV Makers like Tesla The transition to electric vehicles shows how important it is to Pace with the everchanging world of technology, Engineers who used to work on internal combustion engines now need to change their focus to battery and digital Technologies to remain relevant. Luckily, the best way to stay up toate on the latest technological Concepts doesn't require thousands of dollars or years of schooling. It's actually free and easy.

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The first 200 of you will get 20% off Brilliant's annual premium subscription. The UAW was founded in the 1930s and quickly organize workers from Ford GM and Chrysler The union elects Representatives who negotiate with the automakers on behalf of their members. If the automakers are unwilling to meet the Union's pay demands, the union will strike, refusing to work. In recent decades, foreign automakers like Toyota and Nissan as well as new companies like Tesla have set up factories in the US.

The UAW has attempted to unionize these new plants, but for the most part these efforts have failed. Non-unionized automakers pay their workers only about 10 to 20% Less in their Union counterparts, of which 1.4% goes to union dues. Thus, the benefit for joining the union is only limited and many workers fear that the union may cause the automaker to shut down the factory altogether. Thus, the American Auto industry has been segregated into two sections: The Big Three Automakers had to negotiate with the UAW while for the most part, all other automakers don't Throughout the 1990s and 2000s, American automakers started to lose market share to foreign competitors.

This was in part due to poor design choices, but some blame must be given to the UAW. By 2008, the average cost of labor at UAW plants was $10 per hour greater than cars made in Europe or Japan. This came to a head with the 2008 Great Recession. With the The Big Three already paying too much to their workers, they were hit hard when unemployment Rose and automobile demand collapsed.

Ultimately, GM and Chrysler declared bankruptcy and were forced to accept government bailouts. In an effort to save the industry, the government negotiated a deal with the UAW to significantly decreased their wages going forward. This agreement included a substantial decrease in hourly wages for new workers, the elimination of defined benefit pension plans, and a removal of cost of living adjustments which previously increased wages each year in line with inflation. In 2007, the average cost per hour of labor at UAW factories was $78 To be clear, nobody was getting paid $78 per hour.

The maximum wage was only $28 but you also have to consider the cost of employer provided Healthcare employer contributions to Define Benefit pension plans and paid time off. After the 2009 deal, the average cost decreased substantially to $56 per hour. The non-salary benefits were reduced substantially, and new workers were paid much lower wages as low as $17 per hour. UAW Wages stayed stagnant for the next 10 years as the automakers were still recovering from the financial crisis and had no means to increase wages.

In 2019, the UAW finally negotiated a significant increase, but average compensation is still far below 2008 levels and this brings us to the current situation. In 20123, the UAW elected a new president sha Fain who is demanding massive pay and benefit increase es. He complains that the big three automakers are making record profits in increasing the salaries of senior Executives At the same time, UAW Workers have seen a pay cut in real terms as their wages have not kept pace with inflation. This strike comes at the worst possible time for the Big Three, as they're already losing billions of dollars on their electric vehicles, which has put them in a precarious financial position already.

In recent years, the big three automakers have been investing heavily in electric vehicles in an effort to compete with. Tesla Transitioning to EVS has become a priority with countries in Europe as well as California planning to ban the sale of internal combustion engine cars by 20135, the Legacy automakers need to invest tens of billions of dollars to repurpose their factories to build. EVS Additionally, their lacking Battery Technology currently puts them at a severe cost disadvantage compared to Tesla. For example, in the first half of 2023, Ford sold 47,000 electric vehicles.

This is the most out of any of the big three, but it still represents just 2% of their total sales. The average selling price was $53,000 but it cost them $91,000 to make each vehicle, leading to a $388,000 per vehicle loss. As it turns out, electric vehicles are actually easier to build than internal combustion engine cars. They have less parts and require 40% less labor to assemble.

The reason they cost so much more is because of the batteries. Most Us automakers, including Ford currently import their batteries from abroad, but this is very expensive. Earlier this year, Ford announced that they'll be spending $3.5 billion to build their own battery. Factory in Michigan Licensing Technology from the Chinese Battery Company.

Catl the factory was expected to come online in 2026. By making the batteries themselves, the cost will be much lower. Jobs at the new battery factories could replace many of the jobs lost on the assembly lines. As part of the negotiations, Shan Fain is demanding that wages at these battery plants must be the same or higher than the wages that they are demanding for existing Ford factories.

This is despite the fact that the workers at these new battery factories have not voted to join the UAW as they do not yet exist. as the UAW negotiation stalled, Ford halted construction on their new battery. Factory They won't continue construction until they have certainty that they can operate it competitively. Basically, Ford is saying that if the UAW gets the wages at once, it would be impossible to make electric vehicles profitably.

Thus far, the UAW and automakers can't come to an agreement. The automakers say that the Union's demand would bankrupt them. The UAW says the automakers are making record profits and CEO compensation has increased. While wages for production workers have remain stagnant, the CEO compensation issue is a distraction.

The highest paid of the big three is GM CEO Mary bar who made $29 Million last year. While you can argue about whether or not this is excessive, it's a rounding error compared to the tens of billions of dollars that they paid to UAW workers. On the issue of record profits, It is true that the Big Three had a great year in 2022. For example, Ford's North America segment generated $9 billion of pre-tax profit.

Although a lot of that profit came from cars made in Mexico. It is estimated that Uaw's demands would add roughly $20 billion per year of cost to each of the three automakers. that would turn the9 billion profit into an 11 billion loss. Not only that, but Ford plans to invest $50 billion over the next 3 years in an effort to transition onethird of their production to electric vehicles by 2026.

Remember, only 2% % of their vehicle sales are electric today, so it will be huge effort to reach this goal. The increasing difficulties with the UAW will likely push the Big 3 to shift more of their production. South Of the Border all the big three have factories in Mexico. The Usmca trade deal allows them to be exported to the US and Canada without tariffs.

The Mexican factories are also unionized, but wages in general are much lower. The starting wage is the equivalent of $3 per hour less than a fifth of the starting wage of UAW workers, even under the ex existing contract. As an example, Ford operates two factories in Mexico, making 400,000 cars per year, the vast majority of which are exported to the US and Canada. This is compared to 1.8 million cars that they make each year in the US.

If the UAW forces untenable wage increases, the Big three will have no choice but to lay off Us workers and move more production to Mexico. But this will only work for Internal Combustion Engine. Vehicles. The $7,500 EV tax credits from Biden's Inflation Reduction Act are are only eligible for cars assembled in the US.

This puts the Big Three in a difficult position as the industry transitions to EVS. They're already uncompetitive with Tesla and raising wages for UAW workers will make the situation even worse. The most obvious beneficiary is Tesla. It's in Tesla's interest for these Big Three to remain uncompetitive in electric vehicles so that they can maintain their dominant market share.

But surprisingly, Musk has come to the defense of the Big Three, calling the Uaw's demands ridiculous and saying the Big three will go bankrupt under the new terms. So why is Musk saying this? Why not just sit back and watch his competitor struggle? Tesla is an obvious beneficiary of the UAW strike in the short term, but in the long term, the story is a bit more complicated. In theory, there's nothing stopping Tesla's workers from joining the UAW if a majority of them vote in favor of this and if this happened, Tesla would end up in the same predicament as the Big 3. In 2017, some workers at Tesla's Fremont California Factory contacted the UAW and tried to organize a union vote.

Elon Musk is a strong opponent of unions. He fired one of the employees involved in the union activism and put out a tweet saying that workers would lose their stock options if they unionized. a Court ruled that both of these actions were in violation of labor laws. If workers want to unionize, companies aren't allowed to stop them or retaliate against employees who vote in favor of unionization.

The reason that Tesla's workers have thus far failed to unionize is because under the existing contracts, UAW workers only get paid about 10 to 20% more than non-union workers. However, if the UAW secures a big pay raise, the Gap will widen significantly, providing a greater motivation to join the union. That's why Musk is so scared of the current strikes at the Big Three. With that being said, it's extremely unlikely that the UAW will secure anything close to what they are currently demanding, as the Big three simply can't afford it.

It's unclear what the UAW is realistically trying to accomplish with its current strikes. Regardless of the outcome of the negotiations, the Uaw's exessive demands will almost certainly accelerate the Outsourcing of internal combustion engine vehicle production to Mexico. It has cast serious doubt on the Big 3's plans to invest in electric vehicles. All right guys, that wraps it up for this video.

What do you think about the UAW strikes? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one. Wall Street Millennial Signing out.