Wall Street is buzzing with activity as it assesses the potential impact of the wage increases secured by the striking United Auto Workers (UAW) on the financial performance of the Big Three automakers.

Late on Wednesday, Ford Motor Co. (F) and the UAW announced a deal that would result in a 25% increase in base wages over the four-year contract duration. According to the union, this agreement would boost top wages at Ford by over 30%, bringing them to over $40 an hour. Additionally, starting wages would rise by 68% to over $28 an hour when factoring in cost-of-living adjustments.

While Ford workers are returning to their jobs as the tentative agreement undergoes ratification, the pressure is now on General Motors Co. (GM) and Stellantis NV (STLA) to also reach an agreement with the UAW.

Emmanuel Rosner, an analyst at Deutsche Bank, has estimated that Ford could face a cost impact of approximately $850 million in the first year of the contract, rising to $2.3 billion by the fourth year. This translates to a total cost increase of $6.2 billion over the course of the four-year agreement.

As for GM, Rosner estimates a cost impact of around $1.2 billion in the first year and $2.5 billion in the fourth year, resulting in a total cost increase of $7.2 billion. Similarly, Stellantis is expected to experience an impact of about $1 billion in the first year, $2.2 billion in the fourth year, and a total cost increase of $6.4 billion, according to Rosner's analysis.

GM recently reported its third-quarter earnings and disclosed that it had incurred approximately $800 million in costs since the strike began in mid-September. This figure includes an anticipated $600 million in expenses for the fourth quarter.

It is worth noting that the UAW has diverged from its usual practice of striking at one automaker at a time and has instead called for strikes at specific facilities of all three carmakers.

Ford's Response to Strike Impact

Introduction

Ford's Guidance

While GM is expected to withdraw its guidance for the year due to the strike, Ford may not need to take such drastic measures. Narayan suggests that Ford has "the end in sight" and is likely to maintain its guidance. Although some downward adjustment is anticipated, it is expected to be significantly lower than GM's projected $1 billion UAW impact. Ford may only need to reduce its guidance by up to $500 million, according to the analyst.

A Momentous Victory for U.S. Auto Workers

The UAW-Ford tentative agreement, resulting from the strike, is being hailed as a major win for U.S. auto workers. Kate Bronfenbrenner, a lecturer at Cornell University's School of Industrial and Labor Relations, believes that this victory will have far-reaching effects on union organizing and bargaining efforts worldwide. She emphasizes that unions can achieve success by running aggressive and strategic strikes that address the concerns of workers and the broader community.

Expanding Unionization Efforts

The UAW's success with Ford has motivated the union to intensify its efforts to unionize nonunionized car factories in the United States. This includes targets such as Tesla Inc.'s facilities and assembly plants owned by foreign automakers. During a recent address to the membership, UAW President Shawn Fain expressed determination to organize nonunion auto companies like never before.

Market Impact

While the strike and its consequences continue to unfold, stock prices reflect the uncertainty in the automotive industry. Shares of Ford, GM, and Stellantis have experienced losses, closely tracking the broader equity markets. Tesla shares have been particularly affected, with a decline of 3%, and Rivian Automotive Inc.'s stock has dropped over 5%.

As Ford navigates the aftermath of the strike, all eyes will be on its upcoming third-quarter earnings report. The company's ability to mitigate the impact of the strike and maintain its financial guidance will be crucial in determining its future success.

For more information, stay tuned for our comprehensive coverage of Ford's third-quarter earnings release on Thursday.