Challenges surround the US automobile manufacturing capital

The pressure to increase wages while producing electric vehicles at a loss and falling behind Tesla is casting a shadow over the future of the auto manufacturing community in Detroit.

The strike of the American Auto Workers Union (UAW) has lasted for 3 weeks in the "capital" of US auto manufacturing - Detroit, where the factories of the "Big Three" of the car industry including General Motors (GM), Ford are located. Motor and Stellantis (formerly Fiat Chrysler Automobiles). The situation escalated when some workers sabotaged production tools at two plants owned by GM and Ford.

Meanwhile, there are still few signs of progress in the UAW's negotiations with Detroit automakers. The employers believe that the Union's demands are unacceptable.

President Biden sided with the UAW, while Detroit manufacturers received support from rival Elon Musk. Speaking on

It is unclear what the UAW's latest offer is, but according to the most recent information WSJ has, it is between 30% and 40%. If the increase is 35%, each car company must spend an additional 2 billion USD in annual operating costs, or more than 1% of revenue. The biggest impact will be on Ford, which employs the most UAW workers, and the lowest on Stellantis, which has a more global reach.

UAW members outside the Stellantis Complex in Toledo, Ohio. Photo: Bloomberg

But a raise isn't the only thing the UAW wants. According to analysis by financial group Wells Fargo, the most expensive part of the request is the 32-hour workweek but 40-hour pay, which Musk also opposes.

This unusual request is considered by observers to be an extreme position in negotiations rather than a realistic ambition. Combined with other requirements, Wells Fargo believes that the terms UAW offers will reduce the auto industry's profit margin by a maximum of 2 percentage points, but not to the point of paralyzing the business.

However, an even greater challenge than the UAW's current pressure looms over Detroit. That is their future before the electric car trend. While the traditional pickup trucks and SUVs that Detroit is making are profitable enough to satisfy most requests from the UAW, its electric vehicles don't even cover public wages. staff, not to mention having to increase according to negotiations.

The second quarter report of Ford Model e - Ford's electric vehicle subsidiary - recorded a loss of 1.8 billion USD in the first half of this year. On average, each F150 Lightnings and Mustang Mach E sold at a loss of $32,000. The company's electric vehicle segment is expected to lose $4.5 billion this year, double the $2.1 billion in 2022.

Ford plans to produce 600,000 electric vehicles per year by 2024 and begin production of second-generation electric vehicles in 2025. However, it is still unclear how the Detroit-based electric vehicle can achieve similar profits. like their internal combustion engine vehicle products.

The fastest path to higher EV profit margins - as Tesla has done - is to seek support from China. Ford wants to license cheap Chinese battery technology but faces opposition in Washington. Last week, Ford said it had paused construction of a $3.5 billion battery plant in Michigan.

The reason is that the White House has not decided whether to exclude Ford from the electric vehicle incentive or not. According to the incentive package signed by Mr. Biden, manufacturers must ensure the supply chain does not contain Chinese elements.

Workers on the F-150 Lightning production line. Photo: Ford

Detroit's transition to electric vehicles is expected to be arduous. Recently, because of heavy losses, Ford said it would reduce the growth rate of electric vehicle production. Meanwhile, rival Tesla is still moving forward. In July, Tesla reported a 20% increase in second-quarter profits, even after slashing prices.

Detroit companies' labor costs, including wages and benefits, are estimated to average $66 an hour, while Tesla costs just $45. This company has no union organization and was established only 20 years ago.

Wells Fargo estimates that meeting all UAW requirements would push average hourly labor costs to $136 for Detroit companies. The US auto manufacturing "capital" may be even more inferior when in March, Musk revealed a plan to promote technological advantages to cut production costs by 50% for next-generation car models.

Additionally, the main difference between Tesla employee compensation and UAW employee compensation revolves around the company's growth. UAW workers receive profit-sharing bonuses, while Tesla workers receive stock options, which do not incur a direct cash cost to Tesla. Over the years, Tesla stock has grown rapidly despite periods of volatility.

And while Ford is negotiating on both fronts with the UAW and the government, the biggest unknown is how quickly Americans will embrace electric vehicles, especially pickup trucks and large sport utility vehicles. large, which is a staple product of Detroit.

The electric vehicle market in this segment is still very primitive. Accordingly, F-150 Lightnings only accounted for 2% of total sales of the F series in the first 8 months of this year. Rivian, an electric vehicle startup focusing on SUVs, is expected to produce only 52,000 vehicles in 2023. Meanwhile, Tesla has not yet sold the Cybertruck.