The United Auto Workers (UAW) strike is expanding in a move that will surely hurt the U.S. economy and auto stocks as a whole. Investment bank Morgan Stanley (NYSE:MS) recently estimated that a full month of lost automotive production would cost General Motors (NYSE:GM), Ford Motor (NYSE:F) and Stellantis (NYSE:STLA) combined $7 billion to $8 billion in lost profits. A protracted work stoppage at the automakers will also impact the U.S. economy. Anderson Economic Group, for example, estimates that a UAW strike will cost the U.S. economy about $5 billion every 10 days. That hit to the economy includes reduced consumer spending and a loss of tax revenue across all levels of government.
Clearly, the strike by the UAW, which has more than 150,000 members, is a bad outcome. However, with the union demanding pay raises of 40% and to reinstate traditional pension plans for all unionized workers, it looks like the strike could continue for some time yet. Here is a look at three auto stocks to avoid as the labor strike drags on.
General Motors (GM)
General Motors is arguably the most vulnerable of the auto stocks because of the UAW strike. Not only is the union now targeting 18 of the company’s manufacturing plants and parts distribution centers across 13 states, but the UAW has also rejected GM’s contract offers, calling a proposed 16% pay increase “insulting.” This sets the stage for what could be a protracted work stoppage at General Motors, including a general strike where all production at the automaker is shut down.
For GM, the strike actions by the UAW come at a particularly sensitive time for the company. General Motors is already behind in its stated goal to produce one million electric vehicles in North America by 2025. Analysts peg the actual number at more likely to be 600,000 EVs annually. Plus, the company is increasing its cost cutting measures as it plows $35 billion into its electric vehicle development. GM recently announced its plans to eliminate $3 billion in expenditures, up from $2 billion of cuts previously announced.
A prolonged work stoppage at General Motors could have disastrous consequences, both in the short and long-term. GM stock is down 5.65% over the last 12 months, and down 1.81% over five years, making it a prime example of auto stocks to avoid.
Stellantis (STLA)
Stellantis and its stock were doing well before the current strike by the UAW. Over the last 12 months, STLA stock has increased 57.19%, far outpacing the auto stocks of GM and Ford. The stock’s appreciation has been due to the parent, Fiat Chrysler’s, ability to ramp up international sales outside of North America, particularly in Europe where it has bestselling nameplates such as Fiat and Peugeot. Stellantis has also expanded its production to more low-cost manufacturing centers outside of North America, recently announcing a new plant in Rio de Janeiro.
However, much of the progress that’s been made could be thrown for a loop if the UAW strike expands further or drags on. After all, the UAW is now targeting more Stellantis locations than either GM or Ford. Striking auto workers are now off the job at 20 Stellantis facilities in 14 states. The most recent contract offer from Stellantis includes a 21% wage increase that would see current hourly workers earning as much as $96,000 a year by the end of the new contract in four years time. But the UAW continues to balk at the company’s offers.
STLA stock has risen 11% over the last five years.
Aptiv (APTV)
Beyond the automakers, it is the vehicle parts manufacturers and suppliers that are likely to be most impacted by the current UAW strike. Chief among them is Aptiv (NYSE:APTV), a parts manufacturer that was spun out of General Motors in 1994 and today has annual revenues of nearly $18 billion. The company makes critically important automotive components related to voltage, data connectivity and various safety features. Aptiv lost an estimated $200 million in sales during a 40-day strike at GM back in 2019.
APTV stock is up 5% so far in 2023 and has gained 17% through five years. As with the automakers, the UAW strike comes at a sensitive time for Aptiv, which has seen declining sales in recent years. The company has projected annual revenue for this year of $19.70 billion, which would be a year-over-year increase of 2.26%. However, that forecast could be in jeopardy if the UAW’s job action carries on for a prolonged period. There are also reports that institutional investors have been offloading APTV stock since the autoworkers’ strike began.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
