If the United Auto Workers succeeds in getting its way, it’s possible that the Big Three may shrink to the point of irrelevance, if not fade altogether.
If the United Auto Workers succeeds in getting its way, it’s possible that the Big Three may shrink to the point of irrelevance, if not fade altogether.
T he United Auto Workers is acting like it’s 1950. With the union’s contract with the Big Three automakers set to expire on September 14, the UAW is demanding enormous concessions that are only possible with a mid-20th-century economic boom. In reality, General Motors, Ford, and Stellantis are looking at a grim future of likely losses. If the UAW gets anything close to what it’s demanding, it may drive the Big Three off a cliff — taking the UAW’s 150,000 members with it.
The UAW’s wish list paints a rosy picture of automaker finances. The union wants a nearly 50 percent pay raise, 40 hours of pay for a 32-hour work week, and the return of old-school, defined-benefit pensions, which new workers haven’t received since 2007 and nearly bankrupted automakers. While workers understandably want wage hikes, especially after years of devastating inflation, these demands don’t reflect the realities facing the Big Three. Domestic automakers have been profitable over the past decade — making $164 billion, including $20 billion in 2023 — but the rapid transition to electric-vehicle production has automakers spending huge sums while preparing for substantial red ink.
It would be one thing if the shift toward electric vehicles was driven by customers, which would indicate the type of demand that would lead to long-term profitability. Instead, the EV transition is driven mostly by government mandate, free of regular people’s input or wishes. Nine states have embraced bans on gas-powered cars after 2035, led by population giants such as California and New York, with others likely to follow. The Biden administration has proposed a mandate that would require at least 50 percent of U.S. car sales to be non-gas-powered cars by 2030, rising to 67 percent by 2032.
Hence the Big Three’s EV spending spree. General Motors is in the middle of a $35 billion EV build-out, having promised to make only electric passenger vehicles starting within the next twelve years. Ford has pledged $50 billion to the EV transition, while Stellantis is spending at least $35 billion through 2025. These enormous outlays eat up most of the Big Three’s profitability of the past decade, yet more spending is on the way. Despite being invented over a century ago, electric vehicles still face serious technological limitations and production kinks, making economies of scale a distant prospect.
Automakers face this reality every day. General Motors is losing money on every electric vehicle, a situation that it hopes to change by 2025, though the path is far from certain. Ford’s EV line is expected to lose $4.5 billion this year, up nearly 50 percent over last year. Stellantis’s CEO has said the costs of the EV transition are “beyond the limits,” meaning the industry can’t continue down this road without making EVs prohibitively expensive.
Meanwhile, customers aren’t buying the EVs that most automakers are selling. They’re sitting unsold on dealer lots, with inventories swelling 350 percent this year and lasting twice as long as the industry average. Automakers are cutting prices, yet that only adds to their losses. Recent numbers indicate that Ford’s Model E segment is losing $66,000 on every EV they sell, while competing firm Rivian is losing just under $32,000 per unit sold. By the time gas-powered bans and EV mandates go into effect, the Big Three will likely still be losing billions of dollars.
Amid this crisis, General Motors has said outright that union demands will threaten domestic auto manufacturing by unionized workers. Stellantis has said it may no longer be able to provide job security, since higher costs will force painful trade-offs. The Big Three already pay nearly 20 percent higher labor costs than nonunionized foreign automakers with plants in the United States, and nearly 45 percent higher costs than Tesla. The UAW’s demands would make Detroit even less competitive, with higher labor costs forcing the very price hikes that automakers are trying to avoid in order to keep customers.
Reality notwithstanding, the UAW is demanding that the Big Three guarantee a certain number of EV jobs. Yet as automakers lose ever more money, they won’t have the resources to keep so many union workers employed. The UAW’s only hope may be federal taxpayers. The Biden administration recently pledged $12 billion to help automakers build more electric vehicles, which may be just the start of more bailouts for struggling companies saddled with both unpopular cars and unprecedented union demands.
Is this the future of the Big Three? Making cars people don’t want at prices they can’t afford, while paying workers more to work less, mostly on the taxpayer’s dime? If so, it’s an unsustainable business model that will benefit neither consumers nor taxpayers. These famed automakers are already a shadow of what they once were. If the United Auto Workers succeeds in getting its way, it’s possible that the Big Three may shrink to the point of irrelevance, if not fade into the sunset altogether.