The stocks of Ford Motor Co. and General Motors Co. saw an increase on Friday as nearly 13,000 U.S. auto workers went on strike after failed contract negotiations. The strike began after the national contract expired just before midnight.
The United Auto Workers (UAW) union opted for targeted strikes, starting with workers at a Ford plant in Michigan, a GM plant in Missouri, and a Stellantis N.V. plant in Ohio. UAW President Shawn Fain has mentioned the possibility of more workers joining the strike in the future.
It's worth noting that this simultaneous strike at all three carmakers is a departure from the union's usual strategy of focusing on one company to protect its strike fund and picket-line strength.
Ford's stock rose by 0.5% and GM's stock rose by 1.4%. However, data from BondCliQ Media Services shows that the bonds of both companies experienced more selling than buying in the past 10 days. This suggests that bondholders, who focus on a company's financials and cash flows, are less optimistic about their prospects.
Further analysis reveals that Ford's bonds have seen more selling activity compared to GM's bonds. On the other hand, Stellantis, formerly known as Fiat Chrysler, witnessed strong demand for its U.S. dollar-denominated bonds. This is likely due to Stellantis having significantly less debt than Ford and GM.
According to FactSet data, Stellantis has a total debt of approximately $26.5 billion, with about $19.7 billion in bonds.
Ford and GM Brace for Financial Impact of UAW Strike
Ford and GM are facing a potential financial blow as the United Auto Workers (UAW) strike gains momentum. Currently, the strike is limited to just three plants, but experts predict that the UAW will escalate the pressure by targeting more influential plants in the future.
According to recent data from FactSet, Ford holds a staggering $143 billion of debt, including $124 billion in bonds, while GM has $118 billion in total debt, with approximately $107 billion in bonds. Despite these alarming figures, Fitch Ratings believes that the impact on both automakers will be relatively contained for now.
Stephen Brown, a senior director at Fitch, suggests that the effect of striking individual plants could resemble the disruptive impact of semiconductor-related setbacks witnessed in recent years. He also points out that Fitch had already factored in the potential impact of strikes when upgrading its ratings of Ford and GM.
Fitch's decision to upgrade Ford's rating from speculative (or "junk") status to investment-grade BBB- reflects the automakers' robust liquidity positions. As of June 30, Ford boasts over $50 billion of cash and credit facility capacity, while GM holds nearly $40 billion. This financial strength should bolster their ability to weather a prolonged period of production disruption.
While the strike threatens to shake the automotive industry, it seems that investors have not lost confidence in Stellantis. The stock has surged 36% year-to-date, surpassing GM's 1.2% gain and Ford's 9.0% increase. In comparison, the S&P 500 has gained 17% during the same period.
It remains crucial to monitor live coverage of the UAW strikes to stay updated on this ongoing development.
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