Threats of Strikes and EV Switch Jeopardize Profitable Era for US Autos

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Detroit is experiencing some positive developments. Car manufacturers are reporting increased profits, while US consumers, who have extra disposable income due to the pandemic, are willing to invest in expensive vehicles. General Motors, for instance, has raised its 2023 operating profit target to potentially reach $14 billion, with a projected free cash flow of $9 billion.

However, the city remains cautious, mindful of the past financial crisis where the Big Three carmakers nearly collapsed. To safeguard against future uncertainties, companies like GM, Ford, and Stellantis are diligently saving money and investing in electrification and autonomous vehicles – the game-changing trends that will eventually replace traditional combustion engine vehicles.

During a time of resurgence for organized labor, the United Auto Workers union is seeking its fair share of Detroit’s prosperity. A potential strike, an infrequent occurrence in today’s landscape, could halt production and impact 150,000 workers. Disagreements between the union and the carmakers make a walkout increasingly likely.

The legacy automakers find themselves in a delicate position. Car manufacturing has transformed into a high-tech industry closely intertwined with Silicon Valley. While established automakers possess significant advantages, they also face considerable challenges.

One major challenge is the high cost of labor. Foreign carmakers have established factories in southern US states, where unions have less influence. Tech-focused newcomers like Tesla, which recently reduced prices for electric vehicles, do not have collective bargaining agreements with their employees.

GM’s goal is an overall operating profit margin of 10% in North America, highlighting the company’s financial tightrope act. Currently, shareholders are pessimistic, resulting in a 50% decline in GM’s share value since late 2021. Despite an annual free cash flow of nearly $10 billion, the company’s market capitalization is just $45 billion.

With ongoing disruptive changes and labor disputes, today’s profits are unlikely to be sustained.

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