PEUGF - Ford: Failure Is Not An Option

2023-08-22 09:00:00 ET

Summary

• UAW strike vote expected to be approved, strengthening union's bargaining power.
• Ford prepares white-collar workers to fill in if union workers strike.
• President Biden may intervene to avoid strike due to economic and national security concerns.

In this article I will reveal the latest developments regarding the potential UAW strike that's currently barreling toward Ford (F) shareholders like an asteroid about to strike Earth.

When I was thinking of a title for this piece, a famous quote from the Flight Director of NASA's Mission Control Gene Kranz was the first thing that came to mind. " Failure is not an option ." Kranz led the teams for the Gemini and Apollo missions and set many of our nation's first space records. He actually penned a memoir with the same title.

The reason I believe this title is quite apropos is the fact that failure to make a deal and avoid a strike is really not a viable option at this juncture. The problem is accepting the current terms put forth by the UAW could very well ring the death knell for Ford, and the big three, for that matter. In the following sections I will do my best to lay out the current, and quite ominous, developments. After analyzing recent events and reading through the prescient comments and debates from the very well informed Seeking Alpha members on my previous article , I have changed my perspective regarding the odds of a strike coming to fruition. At this time, I believe failure is not an option, and a strike will be averted. Here is why.

Current Events

UAW holding Strike Vote this week

According to Seeking Alpha news:

"Union President Shawn Fain told members in a Facebook ( META ) Live appearance Tuesday that the talks, which started in mid-July, are moving slowly and have yet to get to wages and other economic issues.

The union's contracts with General Motors (GM), Ford ( F ), and Stellantis (STLA) expire in about a month, at 11:59 p.m. Sept. 14.

"If we want to make progress at the bargaining table, we need to show the companies that it's not just talk," Fain said of the strike vote.

He told local offices to report the results of their votes to the union headquarters by Aug. 24.

Strike authorization votes are a routine part of contract talks and are often overwhelmingly approved, but Fain said the vote is a sign of the union's strength."

Based on all my research, the UAW strike vote has a 100% chance of being approved. This is really just a formality at this point. It's seen as a sign of strength for the UAW and substantially strengthens the union's bargaining power. Yet, the run-up to the Sept. 14 deadline is not exactly proceeding in the usual fashion. Here's why.

UAW President Shawn Fain means business

Union members and UAW President Shawn Fain are pulling out all the stops. The union is seemingly prepared to do " whatever it takes " to have their demands met. With Fain responding " By any means necessary, " according to a recent rally attended by hundreds of union members and documented on X.

Recent post on X by the UAW

What's more, the talks appear to have slowed to a snail's pace. Fain defiantly snubbed Stellantis' ( STLA ) latest offer by tossing it into a trash can and calling it "a slap in the face ." According to Seeking Alpha News:

"Fain called Stewart's letter patronizing and said the company is making billions in profits and spends millions on executive salaries "while the rest of us live paycheck to paycheck." Labor costs, he said, are only 5% to 10% of a vehicle's cost."

Additionally, the UAW recently posted on X that "the clock is ticking."

The deadline clock is ticking

The UAW states Sept. 14 is not a "reference point, it's a deadline. They're prepared to walk off the job on that day if their demands are not met. The issue at hand is the fact the current demands are quite untenable, especially for Ford. Let me explain.

UAW current demands are a non-starter for Ford

Many may not realize this, but Ford actually is the one out of the big three that employs the most UAW workers. So Ford stands to take the biggest hit if a strike ensues. One prescient Seeking Alpha member, who was purportedly involved with union strikes in the past, stated the union may single out one of the big three to strike initially. if that is the case, I'm betting the odds are it will be Ford, although Fain pointed out recently that " Stellantis is the most profitable. " Regardless, the current demands of the union are "nonstarters" for the Detroit Big Three. According to Seeking Alpha News:

The current demands are:

• (1) elimination of tiers on wages and benefits
• (2) restoration of Cost of Living Adjustments
• (3) defined benefit pensions for all workers
• (4) right to strike over plant closures
• (5) re-establishment of retiree medical benefits
• (6) a 32-hour work week
• (7) significantly increased retiree pay."

In the same SA news article, it was revealed that Bank of America believes a September strike is likely due to the exorbitant demands. BofA stated:

"In our opinion, labor cannot again become a rising fixed cost. If it does, the bankruptcies of GM and Chrysler will eventually be repeated and jobs will be lost. Therefore, we believe the following demands stated by the UAW cannot be conceded."

In the normal course of negotiations, these events tend to proceed in the same vein as the Congressional debt ceiling negotiations. A deal never gets done until the 11th hour. This is due to the fact that neither side wishes to lose face. Nevertheless, it feels to me like this time it may actually be different. UAW President Fain is emulating the actions of the unions from the 60s. This has caused ford to begin to prepare for the reality that a strike may indeed occur. The following has been reported regarding Ford's strike preparations.

Ford prepares for a strike

According to a recent report by Fox News, Ford is preparing white collar workers to take on the roles of the union workers if they walk off the job. Fox News stated:

"Ford is readying plans for its white-collar salaried employees to step in and keep parts flowing in the instance that its blue-collar union workers walk off the job next month amid threats that the United Auto Workers are preparing to strike at Detroit's Big Three automakers. The Detroit Free Press first reported that Ford is holding meetings with salaried workers like engineers to coordinate and prepare them for filling in at warehouses and operating forklifts to assure dealerships and customers that they are still able to obtain vehicle parts if operations shut down. The outlet obtained a recording of a Ford manager explaining the plans to salaried employees, along with internal company documents providing details. The unnamed manager says in the audio:

"We are working hard to reach a new deal. But, like we do for any scenario where customer service could be interrupted, we need to plan for the possibility of a UAW strike," "Our customers and dealers are counting on us to ship parts so we can keep Ford vehicles on the road. The continued operation of our Ford customer service depots will make the difference between first responders being able to respond to emergencies or not, utility trucks being able to respond to power outages or not, customers making it to work or not, and customers accessing health care or not. This is our core purpose for the company, giving people the freedom to move. That's why we are preparing to supply dealer part orders in the event of a strike."

When considering all the facts, I don't really believe Ford could actually pull this off. I would very much like to hear what the prescient Seeking Alpha members have to say about this plan. It appears as if we are headed for an impasse, making a strike inevitable. The one variable that may come to the fore is President Biden stepping in and intervening to bring the parties together. Let's take a look at what actions the government could actually take.

Will the government intervene?

The odds of the two sides coming to an agreement seem extremely bleak to me. This made me think President Biden will most likely get involved to avoid the strike from occurring. I believe this will happen for two major reasons. Firstly, it would be a nice feather in his cap if he was able get the two sides to come to an amicable agreement, avoiding a strike. Secondly, Biden has a vested interest in keeping the big three on track. The administration has expounded greatly upon the country's goal to greatly increase the use of electric vehicles going forward. Furthermore, I was reminded of how Biden stepped in and purportedly used his powers to keep the rail workers from striking back in December of 2022. According to Reuters:

"President Joe Biden signed legislation Friday to block a national U.S. railroad strike that could have devastated the American economy.

The U.S. Senate voted 80 to 15 on Thursday to impose a tentative contract deal reached in September on a dozen unions representing 115,000 workers , who could have gone on strike on Dec. 9. But the Senate failed to approve a measure that would have provided paid sick days to railroad workers."

I was thinking that Biden might step in and stop a strike from occurring in the same way this time. There are many more issues at risk than just the going concerns of the big three. Nevertheless, after researching the subject, I found that the government only has these powers when related to the railways and airlines. According to History.com:

"Negotiations between unions and employers usually don't involve the participation of the U.S. president and Congress. Yet there are two industries in which the federal government can intervene: railways and airlines.

This is because in 1926, Congress passed the Railway Labor Act as one of the first labor laws in the country. This law gives Congress the right to intervene in disputes between rail unions. In 1936, an amendment extended the act's reach to include the airline industry."

Nonetheless, not having the official power to intervene in issues that rise to a national level, doesn't seem to have stopped the Biden administration previously. If things don't seem to be progressing as we get closer to the Sept. 14 deadline, I expect the President to get involved in a big way. Why, because failure is not an option .

The Conclusion

A prolonged strike by the UAW would have far-reaching ramifications for the economy. Moreover, a case can be made a strike could be detrimental to our national security, for that matter. I believe the issues caused by a strike would ripple out far beyond just halting the production lines of the big three. This could bring about the start of the recession everyone has been so vehemently expecting. So, I fully expect President Biden to step in when a resolution seems unlikely.

Before I stated its " Game Over " for Ford and a strike appeared assured. What has changed for me, is the fact now I believe a strike will be averted, yet, it still may be game over for Ford. The fact of the matter is Farley has once again over promised and will surely under deliver once he has to accept a majority of not all of the unions demands. I see Ford having to extend the timelines out much further. On top of this, Ford management will end up having to reduce their EBIT guidance substantially and most likely cut or suspend the dividend once again as well.

I'm very happy to be sitting on the sidelines, with popcorn in hand, to watch the fireworks show when it begins. Ford is presently a "no touch" for me at this time. Those are my thoughts on the matter. I look forward to reading yours.

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