Union Workers Reject New Labor Deal at Mack Truck

In an unexpected turn of events, workers at Mack Truck, represented by the United Auto Workers (UAW), have voted against a new labor deal. This decision has created complications for both the union and the Detroit Three auto makers.

On Monday, 4,000 Mack workers went on strike, and 73% of the union membership voted against the proposed contract. This outcome highlights a potential drawback of the UAW's negotiating strategy for 2023: using strong rhetoric can backfire.

Mack Truck is owned by the publicly traded Volvo AB truck-manufacturing business (ticker: VOLV.B.Sweden), which is controlled by China's Geely, also the owner of the Volvo automobile brand.

As a result of the negative vote, Volvo shares experienced a 1.2% decrease in overseas trading. Futures on the S&P 500 and Dow Jones Industrial Average also showed declines of 0.7% and 0.6% respectively.

The rejected contract, supported by UAW leadership but opposed by the members, included a $3,500 ratification bonus and wage increases of approximately 19% over the contract's duration. The first year would have seen a wage increase of around 10% to offset recent inflation.

While UAW leadership believed the proposed contract was satisfactory for its members, evidently, the members disagreed.

The reasons behind the rejection remain unknown. It is possible that the members have been influenced by UAW President Shawn Fain's statements and have observed the potential benefits received by UAW workers at General Motors (GM), Ford Motor (F), and Stellantis (STLA).

During negotiations with the auto makers, Fain outlined several gains achieved by the UAW, including wage increases exceeding 20%, protection against inflation, improved retirement benefits, and GM's commitment to treat workers at electric-vehicle battery plants as regular UAW employees. Fain emphasized that the strike against the Detroit Three has been instrumental in securing these maximum worker benefits.

Despite the impressive achievements, Fain's public rhetoric may inadvertently be posing challenges for the union by stirring up unrest among its members.

Negotiations in the Auto Industry: An Unusual Public Display

The ongoing negotiation between the Detroit Three automakers (Ford, GM, and Stellantis) and the union has taken an unusually public turn. The demands put forth by the union have been made public by Fain, providing the workers at Mack with a basis for comparison. Unfortunately, the offer made to Mack workers seems to be less favorable, as the Big Three companies have all agreed to pay more than 20% whereas Mack's offer includes only a 19% raise.

A Class War on Humanity: Rallying for Justice

During a recent rally in Chicago, Fain passionately stated, "This war is not against some foreign power. The front lines are right here in our homes. It's a class war on humanity. We're gonna keep going until we win social and economic justice at the Big Three and beyond." Fain's strong rhetoric, combined with his revelations about the negotiations with the Big Three, may have influenced the decision-making process. However, the union has not yet commented on the impact of Fain's rhetoric on the voting outcome.

Impacts on the Union and Strike Fund

The Mack strike adds complexity to the situation, albeit to a limited extent. In addition to approximately 25,000 employees of automakers, the UAW strike fund will now also cover around 4,000 Mack Truck workers. While this will lead to a faster drain of the strike fund than anticipated, it should not present a significant obstacle for the union in the coming weeks or months.

Based on its current reserves of approximately $825 million and considering the number of striking workers, including those from Mack, the strike fund is expected to last for approximately a year.

A Warning for Automakers: Don't Count Your Chickens Before They Hatch

The Mack strike serves as a warning to automakers that a tentative agreement does not guarantee a deal. Both sides need to be cautious about how they communicate their messages once an agreement is eventually reached.

Stock Performance of Automotive Companies

As of Monday trading, Ford and GM shares had experienced a decline of 21% over the past three months, while the S&P 500 was down by roughly 2%. On the other hand, Stellantis shares had risen by approximately 11%.

Stellantis, being a more global company, is less vulnerable to the impacts of events in the US market. Additionally, it offers a relatively cheaper stock, with a trading value of less than four times estimated 2024 earnings. Meanwhile, GM trades for less than five times, and Ford sells for less than seven times.