4 UAW Agreement Scenarios

A C-Suite Quick Take

Shawn Fain announced that UAW has reached a tentative agreement with Ford. The UAW has chosen not to reduce the ratification risk by extending and expanding the strikes as discussed in the last Quick Take.

• There are 4 distinct scenarios depending on how the members vote. If Ford workers reject the agreement, Fain can either Resume the Stand-Up or Go to War. If Ford workers ratify, GM/Stellantis workers can either Accept Pattern or Reject Pattern.

• If Ford workers reject the agreement, the cost of the strikes to the Detroit 3 and the UAW strike fund will grow enormously, particularly since Fain will not want to risk a second rejection.

• If Ford workers ratify the agreement, GM and Stellantis are nearly certain to reach quick agreements that reflect the Ford pattern, though there may be issues with UAW demands for job security.

• A rejection of the pattern set by Ford by either GM or Stellantis workers would put the UAW in uncharted territory.

• Rejection of a tentative agreement at any of the Detroit 3 would exacerbate the internal conflict within the UAW leadership.

• The Detroit 3 have no control over which scenario occurs.

• The US auto industry will be profoundly affected by the 2023 negotiations, but the impact will vary by scenario.

The decision by Shawn Fain to announce a tentative agreement with Ford this week was a surprise, though it is not surprising that it came after the 40-day mark that was the length of the 2019 GM strike or that it came after escalating the strike to profit-center plants at Stellantis and GM. Fain wanted to show that he was more aggressive than his predecessors and going longer than 40 days helps with that message. Adding the GM and Stellantis truck plants to the strikes puts pressure on both companies to quickly accept the Ford pattern if it is ratified.

The surprise is not due to the details of the agreement; the tentative agreement represents remarkable gains for the UAW in wages and other terms – a record contract by any measure. However, it does not achieve all of the gains that Fain demanded and so there is risk that workers will fail to ratify the agreement. The ratification risk would have been lower if Fain had delayed the announcement and escalated the strikes. Fain will try to build momentum for ratification by bringing the entire UAW Ford leadership to Detroit and by having the striking Ford workers go back to work.

Scenario Wargaming to Navigate Uncertainty

Despite the best efforts of the UAW leadership, there remains a significant risk that the rank and file will reject the deal. Scenario wargaming helps think through such uncertainty. Scenarios are plausible “worlds” where there would be fundamental differences in the decisions that a company would like to make. Analysis and wargaming helps companies identify risks and opportunities, make their strategies and decisions more robust, and develop contingency plans and “real options”. This is just a Quick Take – as with the game theory predictions in past articles, deeper cross-functional analysis will produce better results.

If Ford workers reject the tentative agreement, it would be a massive defeat for Shawn Fain and the UAW leadership, despite whatever spin they put on it.  They would need to resume the Ford strike but face a choice on how to do so. In one scenario – Resume the Stand-Up – Fain closes the same Ford plants that he just sent back to work and continues to bargain with all of the Detroit 3, escalating slowly to press for a better deal.  In this scenario, the Detroit 3 would need to be patient, tweaking their offers and waiting for the pressures of the dwindling UAW strike fund and impending holidays to change member sentiment. But the costs would rise on all sides and the long-term damage to the Detroit 3 (and the UAW brand) would increase. The alternative scenarios would be for the UAW to change tactics – Go to War – and fully close Ford to drive a better deal for the pattern. Such a choice would signal that Fain had taken the wrong approach to the strikes and create a true dilemma for Ford. The UAW would be rapidly draining its strike fund – should Ford hold out or make a further major concession? In either case, Ford would be punished despite making record concessions.

If Ford workers ratify the agreement, attention would shift to GM and Stellantis. Both would almost certainly follow the economic pattern set by Ford, since refusing to match would guarantee escalation and refusal of the UAW leadership to agree to a deal. Even if the leadership sent an inferior offer to the workers, it would not be ratified. There could be differences on the parts of the agreement that are not “pattern”, such as work rules and treatment of battery plants, but many of those have already been settled. Since each day’s delay hurts the companies and drains the strike fund, a quick tentative agreement based on the pattern is likely, probably first at GM since Stellantis seems to have more issues.

But even when GM and Stellantis agree to the Ford pattern, their UAW members may not ratify the agreement. In the Reject Pattern scenario, at least one refuses to ratify. This scenario creates a massive problem for the UAW leadership. They need to respect the vote and maintain the strike for the workers who are holding out. But if the strike results in a concession by the company, it could create an asymmetry with Ford, leading to unhappy Ford workers. The UAW would likely hope that a slight tweak, time, and additional persuasion would persuade the holdouts to approve something close to the pattern.

If the agreement is not ratified at any of the Detroit 3, Shawn Fain is at risk. His unprecedented tactics and decision-making would have been rejected by members and opponents within the UAW would have powerful arguments that his inexperience and approach resulted in disaster. The Biden Administration would also be wounded and would face a problem about how to respond. Most likely, Biden would sit on the sidelines, since he has no powerful feasible lever and since he is already linked to the union cause.

The most likely scenario is that Ford workers ratify and GM/Stellantis workers ratify a pattern agreement (Accept Pattern). This is the scenario that Shawn Fain, the Detroit 3, and the Biden Administration hope for. The scenario would be a massive win for Shawn Fain, likely assuring his reelection and creating new dynamics in the auto industry and unionized companies throughout the US.

Note that the Detroit 3 have no role in picking which scenario materializes. The good news of the Accept Pattern scenario for the Detroit 3 would be a relatively low-cost strike given its length. The fallout for the different companies, suppliers, UAW, and workers differs enormously across scenarios. The bad news under any scenario for the Detroit 3 is an increase for each company in the cost of labor of $2B or more by 2028 and an energized, aggressive UAW. Since the Detroit 3 are each making net income of over $20B/year, they can afford the hit over the life of the contract, but long-term concerns about competitiveness are real.