Auto Worker Strikes' Limited Financial Impact on Big Three Carmakers
Fitch Ratings has stated that the recent targeted strikes by auto workers, who are part of the United Auto Workers (UAW) union, will have a limited financial impact on the Big Three carmakers. Currently, only one plant from each company has been affected.
At the strike's onset early Friday, approximately 13,000 U.S. auto workers walked off the job after failing to reach a new agreement with the three automakers before the expiration of their national contract.
The first plants impacted by the strike include a Ford Motor Co. facility in Michigan, a General Motors Co. plant in Missouri, and a Stellantis N.V. factory in Ohio. UAW President Shawn Fain has mentioned the possibility of more plants joining the strike and has urged all 150,000 union members to be prepared if called upon.
This strike deviates from the traditional approach where the union focuses its strike efforts on a single company to protect its strike fund and maximize picket-line power.
According to Stephen Brown, a senior director at Fitch, it is expected that the UAW will escalate the pressure on the automakers over time by targeting more impactful plants and adding additional plants to the strike. Brown compared the potential impact of striking individual plants to the disruptions caused by semiconductors in recent years.
For more information, please refer to: UAW Strike: 12,700 Ford, GM, and Stellantis Auto Workers Walk Off the Job
Fitch Upgrades Ratings of Ford and GM, Citing Robust Liquidity Positions
Fitch Ratings recently announced that it has taken into account the potential impact of strikes when upgrading its ratings for Ford and GM. According to an expert at Fitch, both automakers possess strong liquidity positions that will enable them to weather any potential disruptions in production.
Based on figures from June 30, Ford is estimated to have over $50 billion in cash and credit facility capacity, while GM has nearly $40 billion. This substantial financial strength affirms Fitch's confidence in the automakers' ability to endure an extended period of production turbulence.
In early September, Fitch raised Ford's ratings from BB+ to BBB-, signaling an upgrade from a speculative, or "junk," status to investment grade. This move reflects Fitch's assessment that the challenges experienced in the supply chain in recent years have significantly diminished. Fitch also expects Ford's earnings before interest and taxes (EBIT) margins, free cash flow margins, and leverage to remain robust over the medium term.
Similarly, GM received an upgrade from BBB- to BBB by Fitch in September. The agency commended GM for maintaining a strong liquidity position and an allocation policy that emphasizes financial flexibility and low leverage.
As a result of this news, Ford shares rose by 0.3% on Friday, while GM saw a 1.3% increase and Stellantis experienced a 1% increase.
Overall, Fitch's decision to upgrade the credit ratings of Ford and GM underscores their solid financial foundations and signals optimism for their future performance.
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