Although there are not a lot of details surrounding the ongoing UAW negotiations, Citi believes the recent ups and downs in General Motors (NYSE:GM) and Ford’s (NYSE:F) stock prices might be aggravated by worries that there could be a strike. The chance of a strike happening seems to be getting higher, but the stock market sees it as something uncertain. Looking at how negotiations went before, Citi doesn’t believe the news right now is good enough to predict exactly how it will affect the companies. However, these new events do make it more likely that a strike could happen, and investors have been expecting something like this.
Both General Motors and Ford saw significant drops in their stock prices Thursday. GM’s shares went down by over 5.7%, and Ford’s shares fell by nearly 4.5%. The second and fourth-biggest percentage decliners on the benchmark S&P 500.
“GM and Ford may be in the penalty box for a while. Wall Street hates uncertainty,” said Morningstar analysts. “This is not a normal negotiation both in style and the demands they are asking.”
According to recent reports by Bloomberg, new contract demands made by the United Auto Workers union would add more than $80 billion to each of the biggest U.S. automakers’ labor costs. People familiar with the companies have mentioned that a large increase in costs over the contract’s four-year term could lead to a situation where profits disappear, and the future of the carmakers becomes uncertain.
The UAW is seeking a 46 percent raise in wages, bringing back the old-style pensions, adjustments to keep up with the rising cost of living, a shorter work week, and improved benefits for retirees.
While the car companies are resisting many of these requests, labor groups in the U.S. are gaining momentum. This is particularly evident following the recent success of the Teamsters in negotiating a beneficial new agreement with UPS last month. An agreement which saw the parcel delivery service cut its financial outlook for the year.
Shares of F and GM are down 0.16% and 0.03%, respectively, in pre-market trading on Friday.
