Losses up to 40 billion! The strike in the US auto industry escalated, and car companies laid off employees while negotiating...

The United Auto Workers (UAW) strike against Detroit's three major automakers is in its fourth week and still shows no signs of ending. Faced with the demand for a 40% wage increase, car companies are negotiating to reduce the increase on the one hand, and on the other hand, they have begun to lay off workers en masse, claiming to balance the cost of rising wages.

Recently, Michigan economic consulting firm Anderson Economic Group (AEG) released a report that as of the end of the third week of the strike, the loss caused by the strike to Ford, General Motors and Strantis reached 5.5 billion US dollars (now about 40 billion yuan), exceeding the previous total loss of 4 billion US dollars.

The report expects the U.S. economy to be further hit by strike activity.

It's hard to talk about

Affected by high inflation, labor shortages and unequal distribution, large-scale strikes have broken out in many industries such as film and television, manufacturing and medical care in the United States since the beginning of this year.

On September 14, 150,000 auto workers had contracts with three automakers—GM, Ford and Chrysler. Because the salary increase negotiations did not achieve the expected results, the United Auto Workers of America launched the first general strike in the history of the three major traditional car companies in the United States at the same time.

On October 4, more than 75,000 health workers from the Union Confederation of Kaiser Medical Group, the largest private healthcare facility in the United States, went on strike. The strike, which covered the group's facilities in multiple regions, affected a large number of people, making it the largest strike on the health care system in U.S. history.

"The strike shows that workers want higher wages." Diana Furchigot Ross, a professor of economics at George Washington University and former chief economist at the U.S. Department of Labor, believes that this is due to inflationary pressures.

After the outbreak of the pandemic, rising prices put pressure on workers' wages. According to the U.S. Department of Labor, the real average hourly earnings of workers have fallen by 2 percent over the past two years.

It is reported that the UAW's demand for this strike is a 40% salary increase, a 32-hour work week, equal pay for equal work, as well as retirement security and living allowances.

So far, in terms of payroll, Ford initially agreed to a 9% raise, after a three-week strike, Ford agreed to a 23% raise over the next four years, and GM and Strandis agreed to a 20% raise.

But according to people familiar with the matter, the UAW still wants to end the strike with a pay rise of at least 30 percent, which is already lower than the 40 percent originally proposed.

The auto strike has been going on for four weeks, expanding to 20 states and involving 25,000 people, but there is no end in sight. On October 9, 4,000 employees of Mack Trucks, an American industrial automaker owned by Volvo Group, also joined the strike.

In addition, strikes in the United States have begun to ripple throughout the North American automotive industry. Canadian union Unifor said it would begin strikes at GM Canada's three plants because it failed to reach an agreement on a new contract to raise wages and pensions by the midnight deadline.

Shoot to lay off employees

It is estimated that if the strike demand is met, the personal labor costs of the three major car companies will directly rise from the current $64 to $150, and the three car companies' expenditure on labor costs will increase by 45 billion to 80 billion US dollars.

In order to "cut back on food and clothing" to control costs, several companies have laid off thousands of workers.

Since the strike began, General Motors has laid off 2,330 workers, Ford and Strantiss 1,865 and 640, respectively, CBS reported. The total number of layoffs related to the strike at the three auto giants has reached about 4,835.

AEG chief and chief executive Anderson said the cost of the strike in the third week was higher than in the past two weeks, and the pressure on suppliers had become very heavy as more factories closed and dealers reported shortages of parts.

A recent survey by the Auto Suppliers Association found that nearly 30 percent of surveyed auto suppliers had laid off some direct workers as a result of the strike, and that more suppliers would initiate layoffs, with more expected to begin layoffs in mid-October, AEG said.

The University of Michigan report shows that if the strike lasts for 4 weeks, 150,000 people in Michigan will lose their jobs.

The dilemma of car companies

Michigan, as a swing state, has an important place not only in the automotive industry, but also in the minds of successive US presidential candidates.

As the impact of the strike expands, current US President Biden and former President Trump have both gone to Michigan to "stand" for auto workers, hoping to win votes for the 2024 election.

Biden's Green New Deal focuses on the development of new energy vehicles and large-capacity batteries. According to statistics, with the help of the US green industry policy, by the end of 2022, US companies have announced a cumulative investment of $210 billion in US electric vehicle and battery factories, up from $51 billion at the end of 2020.

As one of the pillar industries for a long time, the automotive industry accounts for 3% of the US GDP, and the above-mentioned large car companies also account for more than 90% of the US auto market. At present, the traditional automobile giants are in a critical period of electrification transformation, which is accompanied by the loss of tens of thousands of traditional automotive industry jobs.

According to Sun Lipeng, assistant director of the American Institute of the China Institute of Contemporary International Relations, Biden expressed support for workers' strikes and consolidated the foundation of governance, on the other hand, he must firmly implement the Green New Deal and flaunt the achievements of "Bideneconomics". His dilemma reflects the difficulty of transforming U.S. auto manufacturing.

Gerald Johnson, GM's global head of manufacturing, said the UAW's requirements "come with significant costs that threaten the company's ability to sustain manufacturing momentum."

Tesla CEO Musk said that the power of American unions is too large, and the demands put forward are beyond the ability of enterprises to bear, resulting in the development of American unions to an extreme. If auto companies across the U.S. agree to a 40 percent wage hike, they could risk bankruptcy.

Add fuel to the fire

Economist Ian Shepherdson believes that if things heat up and turn into a full-blown strike, nearly 150,000 union members of the three major car companies will play a role. In this scenario, US quarterly GDP could be hit by as much as 1.7 percentage points.

The Hill website said that if the full-scale strike continues into the next few months, it will affect the economic growth of the United States in the third and fourth quarters. At the same time, the capacity reduction caused by the strike may push up the price of automobiles amid tight inventories, which is likely to "fuel the fire" of the current high inflation.

Although US inflation has now fallen sharply from its peak in June 2022, it is still above the Fed's 2% target.

The International Monetary Fund (IMF) recently raised its global inflation forecast, while calling on central banks to keep monetary policy tight until price pressures ease persistently. Economists within the Fed also believe that price growth will not return to target anytime soon.

This article is from the International Finance News