The United Auto Workers (UAW) recently announced a tentative agreement with defense contractor General Dynamics. This potential deal will impact approximately 1,100 workers in Ohio, Michigan, and Pennsylvania who are involved in the manufacturing of armored vehicles like the Abrams tank.
General Dynamics stock (ticker: GD) experienced a 0.4% increase during midday trading. The S&P 500 and Dow Jones Industrial Average saw similar gains and remained relatively flat.
Key Details of the Deal
The proposed four-year agreement includes a substantial wage increase of 14% throughout the contract’s duration, along with inflation protection measures. However, it is important to note that this agreement is subject to ratification by the UAW members.
Comparison to Detroit-Three Auto Makers Strike
It is worth mentioning that the wage increase put forward in the tentative deal with General Dynamics falls short of the roughly 23% in wage increases being offered by the Detroit-Three auto makers (Ford Motor, General Motors, and Stellantis) to resolve an ongoing strike. The strike has been ongoing for around 40 days.
Over the past 15 years, auto workers have made significant concessions to bolster the profitability of car makers. On the other hand, the defense industry offers greater stability, leading to fewer large-scale concessions required from its workers.
Implications for General Dynamics
General Dynamics has shown varying operating profit margins in the past decade, ranging from approximately 10% to 13%. In contrast, auto makers have experienced swings from losses to profits within the same time frame.
Prior to announcing the tentative agreement with General Dynamics, the UAW made the decision to walk out of Stellantis’ Sterling Heights Assembly Plant in Michigan. This plant is responsible for manufacturing pickup trucks, which serve as significant profit generators for Stellantis. This move signals that UAW leadership is not yet prepared to present a tentative agreement to any of the Detroit-Three auto makers.
Additionally, UAW members at Mack Trucks voted against a tentative agreement brought forth by union leadership, necessitating further negotiations between the two parties. Mack Trucks is owned by the publicly traded company Volvo AB (ticker: VOLV.B.Sweden), with the Volvo automobile brand controlled by China’s Geely.
The tentative agreement between General Dynamics and the UAW marks a significant development in the ongoing labor negotiations. With the potential for improved wages and inflation protection, UAW members will have the final say on whether to accept this deal. Meanwhile, the Detroit-Three auto makers continue to grapple with their own strike and impending agreements. It will be interesting to observe how these negotiations unfold in the coming weeks.