Canadian Auto Workers Union Reaches Tentative Agreement
General Motors (ticker: GM) has recently reached a three-year tentative labor deal with Unifor, the union representing Canadian auto workers. While investors are primarily focused on this agreement, there remains uncertainty about the satisfaction of United Auto Workers (UAW) leadership.
Highlights of the Agreement
Under the terms of the contract, Canadian wages will increase by approximately 16% over the three-year period, with a significant 10% raise in the first year. Additionally, the deal includes inflation protection measures.
The agreement also entails enhancements to retirement benefits, such as increased contributions to defined benefit and defined contribution plans for workers. Furthermore, employees will have a shorter time frame to reach maximum wage rates.
Competitive Wages in Canada
By the end of the three-year contract, production workers will earn approximately $45 (Canadian dollars) per hour, while tradespeople will earn around $56 per hour. These wage rates translate to gross annual wages of approximately $89,000 and $112,000 respectively, based on a standard 2,000-hour work year.
Comparatively, the average wage in Canada is approximately $40 per hour, resulting in an annual income of about $80,000. The median household income before taxes in Canada stands closer to $90,000, according to Statistics Canada data.
Comparing Canadian and American Wages
It’s important to consider that currency values and living standards vary between countries. In the United States, the median household income is around $75,000 annually.
According to Federal Reserve data, the average hourly rate for a UAW worker in the U.S. is approximately $33 or roughly $66,000 per year. While there is a difference between the Canadian and American figures, both are close to 90% of their respective country’s medians. Moreover, the total compensation rate in the U.S., which includes retirement and healthcare benefits, stands at $66 per hour.
Healthcare in Canada: A Unique System
Healthcare in Canada is a distinctively different negotiation compared to other countries. The majority of Canadians rely on government-provided programs for their healthcare coverage. According to estimates using information from the new labor deal, the all-in compensation cost per hour for a Canadian GM worker might range from $50 to $55. However, the union and GM have not responded to requests for comment at this time.
It is important to note that total compensation for GM Canada appears to be around 120% of the median income in the country. In contrast, for GM in the U.S., it appears to be approximately 175% of the median income. These figures, however, do not take into account healthcare benefits. Median incomes merely serve as a reference point for investors. Moreover, it is worth highlighting that in Canada, the government bears most of the burden of healthcare spending, rather than employers.
When examining the new Canadian deal, we find various improvements for workers. These include wage increases, enhanced retirement benefits, additional paid time off, protection against inflation, faster progression to higher wage rates, and safeguards for employees during the transition to electric vehicles.
GM has offered similar provisions in the U.S., but the UAW (United Auto Workers) seems unwavering in its stance that further measures are necessary. The UAW strike, which commenced on September 15th, has now reached its 30-day mark. Approximately 33,000 out of 145,000 UAW employees are currently on strike at GM, Ford Motor, and Stellantis. Additionally, several thousand more workers have been laid off due to disruptions in the production system.
Unfortunately, investors seem uncertain about the outcome of the U.S. strike. As a result, shares of Ford and GM have experienced declines of approximately 21% and 27% respectively over the past three months, while the S&P 500 index has dropped around 4%.
In contrast, Stellantis shares have seen a modest increase of about 4%. However, it should be noted that Stellantis is a more global company, and its shares are relatively cheaper compared to the other two auto manufacturers. Currently, Stellantis stock is trading at less than four times the estimated earnings for 2024, while Ford and GM stocks trade at less than seven and five times respectively.
Considering all these factors, the future of the U.S. strike remains uncertain. The ongoing strike has undoubtedly impacted the automotive industry and has caused concern among investors. As the situation unfolds, it will be interesting to see how these companies navigate through this challenging period.