What investors should know about Volkswagen, the UAW organization

On March 20, 2024, the employee parking lot of the Volkswagen assembly plant in Chattanooga, Tennessee was filled with Volkswagen vehicles.

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DETROIT – The United Auto Workers scored a big victory this weekend.

Volkswagen Workers in Chattanooga, Tenn., voted overwhelmingly to join the United Auto Workers Friday night, marking the Detroit union’s first victory at a foreign-owned auto manufacturing plant in the South. The vote could have broader consequences for other automakers, organized labor and the U.S. auto industry as a whole.

“This is a really profound victory for the UAW and the entire labor movement,” said Alex Hertel-Fernandez, a former U.S. Department of Labor official and associate professor at Columbia University. “It was a really decisive victory.”

The union passed, according to the National Labor Relations Board, which monitors voting Wednesday through Friday, with 73% of the vote, or 2,628 workers, favoring the UAW.

With the vote unchallenged, German carmakers and unions are expected to negotiate contracts for about 4,300 workers within the voting area. The NLRB must still verify the results.

Here’s what investors should know about the UAW vote and next steps:

The UAW saw last week’s vote as the union’s best chance to organize VW plants after strikes and record contracts. General motor, Ford and parent company Chrysler strantis 2023.

The union, led by President Sean Fein, is using the contract with Detroit automakers, which includes record wage increases and benefits, as a springboard for an unprecedented organizing drive. 13 non-union automakers in the US

In addition to Volkswagen, the union’s targets include: BMW, Honda, Hyundai, Lucid, Mazda, Mercedes-Benz, Nissan, Rivian, Subaru, Tesla, Toyota and Volvo. According to the UAW, the campaign reached about 150,000 U.S. autoworkers.

“It’s very likely that it’s contagious,” Hertel-Fernandez said. “When workers see success in organizing or striking, it often inspires further action inside and outside the industry.”

Kelsey Smith displays a UAW button on April 10, 2024 in Chattanooga, Tennessee.

Kevin Worm | The Washington Post

The next step for the alliance is to hire 5,200 Mercedes-Benz employees at an SUV plant in Vance, Alabama. Earlier this month, plant workers filed paperwork with the NLRB for a formal election scheduled for May 13-17.

“We will take this fight to Mercedes and elsewhere,” Fein told VW employees after Friday night’s historic vote. “So thank you all, for your struggle and your work. Let’s begin. Let’s go to work. Let’s win more for the working class across the country.”

The first potential impact of Volkswagen’s organizational efforts is labor costs.

UAW organizers leveraged record contracts with Detroit automakers to gain support from the Chattanooga union. UBS said in an investor note that Volkswagen’s US operating margins are relatively low and “significant wage increases could hurt the earnings prospects of local US businesses.”

But for the Detroit Three automakers and their shareholders, VW’s organizing campaign could be positive.

General Motors, Ford and Stellantis have higher overall labor costs than unorganized carmakers such as Volkswagen. Depending on the details of the deal, labor will push Volkswagen and other companies to level the playing field somewhat.

United Auto Workers President Sean Fein cheers on U.S. President Joe Biden during his State of the Union address in the House chamber at the U.S. Capitol on March 7, 2024, in Washington.

Evelyn Hochstein

UBS said: “Overall, given the wage gap between UAW union workers (Detroit-3) and non-union workers in southern states, it can be argued that this vote will affect Volkswagen over time. wages,” he said in an investor note.

Before reaching Detroit automakers last year, average labor costs for Ford, General Motors and Stellar were between $63 and $67 an hour, according to industry experts. By comparison, workers at non-domestic automakers like Volkswagen earn $55 an hour. This fee includes all facilities and health care costs.

Still, there’s no guarantee that Volkswagen – a much smaller US automaker – will agree to the same terms as traditional domestic automakers.

“The real battle starts now,” Fein said Friday, referring to talks expected between the union and Volkswagen.

The Volkswagen vote is widely expected to be the easiest of the UAW’s organizing plans, as the union already has an established presence there after narrowly failing at the polls in 2019 and 2014.

Sharon Block, a Chattanooga professor, said Chattanooga’s success bodes well for UAW efforts at other automakers. Harvard Law School and former DOL and NLRB officials.

“I think it’s hard to overestimate the importance of this moment and how strategic the UAW was in this campaign and I think it shows that this is not the last time we’re going to talk about a UAW victory in an auto plant. South,” said the ox.

Although opposition during the popular vote was rare, the most striking example came in the form of a letter the day before the election. Six Republican governors condemned the UAW’s push to organize auto plants in the South and warned of potential layoffs.

“We work tirelessly on behalf of our constituents to bring good paying jobs to our state These jobs are already part of the fabric of the auto manufacturing industry Unionization will certainly put jobs in our state at risk – in fact, in the process, statements signed by the governors of Alabama, Georgia, Mississippi, South Carolina, Tennessee and Texas say all UAW automakers have announced layoffs this year.

Bullock called the letter an “empty threat” and a “cruel ploy,” but noted that rising labor costs could lead to fewer jobs.

Fewer jobs in the US auto industry mean fewer workers eligible for union membership.

Detroit automakers’ UAW membership has declined in recent decades as free trade agreements have allowed automakers to make cars more cheaply elsewhere.

UAW membership, consisting primarily of autoworkers but also agricultural and aerospace workers, reached 1.5 million in 1979. As of last year, union membership stood at 370,239 workers, down 3.3% from 2022 and 75% below the peak. By 2023, workers at Detroit automakers will total about 150,000.

– CNBC Michael Bloom Contribute to this report.