Auto industry recovery benefits investors and bosses, not workers

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According to analysis by the Financial Times, over the past five years, the US auto industry has achieved a stunning recovery after the 2008 financial crisis, with shareholders and top bosses at General Motors, Ford and Stellantis faring far better than workers.

The industry is booming as a strike called by the United Auto Workers enters its second week, bolstering the union’s leverage in negotiations. Shareholders have received nearly $85 billion from the Detroit Three through dividends and buybacks since the crisis, documents show.

The United Auto Workers union expanded its strike on Friday, dealing a deeper blow to GM and Stellantis, while stepping away from pressure on Ford’s operations after the company raised wages.

The three automakers remain locked in fierce pay negotiations with unions, saying they need resources to invest in electric vehicles and compete in an increasingly tough global market.

However, the UAW noted that wages have been stagnant and worried that the shift to electric vehicles, which requires fewer workers to assemble and source batteries from non-union factories, could spell trouble for the future of organized labor at U.S. automakers. risk.

Philippe Houchois, global automotive analyst at Jefferies, said the automaker’s huge profits have left manufacturers “in a difficult position” in negotiations.

He added that big increases in executive pay, especially at a time when most workers are being hit by soaring inflation, make demands for higher wages “an easy sell for the UAW.”

In real terms, average worker wages at all three major automakers fell by about 20% in the five years to 2022, largely due to lower wages at Ford.

However, automakers have warned that the union’s initial demand for a 40% increase, which has now been slashed to 36%, would pose a risk to the manufacturer’s financial health.

Ford CEO Jim Farley said the company “would be bankrupt right now” if it had paid the wages demanded by the UAW union.

The automakers have yet to say publicly how much the UAW demands will cost them. Farley estimated that Ford had a combined profit of $30 billion over the past four years but actually lost $15 billion, suggesting a $45 billion chasm, while sources close to GM said the cost hit was much higher. More than US$80 billion to US$100 billion.

expenditure

Of the $84.9 billion returned to investors since the financial crisis, $52.7 billion was paid out through dividends and $32.6 billion through stock buybacks.

That includes a $3.5 billion one-time dividend that Fiat Chrysler paid before merging with PSA in 2020 to form Stellantis to balance the value of the combined company.

Much of that was driven by GM’s $26.3 billion stock buyback program, which largely ran from 2012 to 2017, when the company thrived in the years following bankruptcy.

The payments also confounded observers because automakers would need to invest billions of dollars in developing electric vehicles to compete with Tesla.

“People will say: ‘You told us electric cars were going to be expensive, but you wasted so much money on buybacks,'” Hujois noted.

profit

Profits from the three combined totaled $70.3 billion in 2021 and 2022, a figure that would have been higher if Ford hadn’t reported a $2 billion loss last year after writedowns at startup Rivian and self-driving company Argo AI.

Profits were boosted by rising prices as a chronic global parts shortage collided with strong post-pandemic demand.

For General Motors, 2021 is the company’s most profitable year since its bankruptcy in 2009, with revenue of $10 billion. Stellantis, which includes France’s PSA Group after its merger in 2019, had a record net profit of $17.7 billion last year, almost all of which came from North America.

Despite declining vehicle sales, the three major automakers’ combined revenue reached $4 trillion over the past decade.

expenditure

A sore spot for the UAW has been the escalating paychecks of top executives, many of whom have their pay tied to other performance measures such as profits or shareholder returns.

There are some mitigating factors. Stellantis has doubled in size and replaced its chief executive following its merger with PSA, with Peugeot’s Carlos Tavares leading the new business and replacing Fiat Chrysler’s Mike Manley.

Likewise, Ford replaced Jim Hackett with Jim Farley in 2020, causing the 2020 pay numbers to spike.

At General Motors, CEO Mary Barra’s pay increased by 11% in real terms over the five years to 2022, while pay for rank-and-file employees fell by 10%.

Stellantis’ wages increased by 29%, while average employee wages fell by 9% after adjusting for inflation.

High executive compensation is not limited to the automotive industry but is also closely tied to broader economic factors.

“In 2021, when the economy was booming after the 2020 pandemic, 82.5% of CEOs received bonuses above target,” said compensation and data group Equilar.