United Auto Workers (UAW) members strike at a General Motors assembly plant that builds the U.S. automaker’s full-size sport utility vehicles, in another expansion of the strike in Arlington, Texas, October 24, 2023.
James Breeden | Reuters
DETROIT – General Motors plans to invest roughly $13 billion in U.S. facilities by April 2028, the United Auto Workers union said as part of its recent tentative agreement with the automaker.
GM has already announced some of the planned investments such as $4 billion at Orion Assembly in suburban Detroit and $2 billion in Spring Hill, Tennessee, for new electric vehicles. Others, such as $1.25 billion for a future electric vehicle plant at Lansing Grand River, are new.
Many of the new investments include hundreds of millions of dollars for assembly plants to support or add additional volume as well as engine and components plants.
Details of the tentative agreement were released Saturday after local UAW leaders with GM approved the pact, which must still be ratified by a simple majority of the union’s 46,000 members with the automaker. GM was the last Detroit automaker to reach a tentative agreement following Ford Motor and Chrysler-parent Stellantis.
GM’s U.S. investments through the terms of the 4 ½-tear tentative compared to $8.1 billion announced by the union at Ford and $18.9 billion at Stellantis, including $6.2 billion in previously announced parts plants in Kokomo, Indiana.
GM declined to comment on the released details, referring back to a statement by CEO Mary Barra when the tentative deal was initially announced: “GM is pleased to have reached a tentative agreement with the UAW that reflects the contributions of the team while enabling us to continue to invest in our future and provide good jobs in the U.S.,” she said. “We are looking forward to having everyone back to work across all of our operations, delivering great products for our customers, and winning as one team.”
The tentative labor agreement was announced Monday after roughly six weeks of targeted strikes by the union against GM, Stellantis and Ford, also known as the “Big Three” automakers. The work stoppages began on Sept. 15 after the sides failed to reach deals covering 146,000 UAW members with the automakers by a strike deadline.
“There’s a reason why the Big Three and their allies feel like they just got taken to the cleaners. This contract has wage increases and economic gains like nothing we’ve ever seen before, said UAW Vice President Mike Booth during an online broadcast Saturday. “The gains in this contract are worth more than four times the last contract.”
Like the UAW’s tentative agreement with Stellantis and Ford, the deal includes 25% pay increases, bonuses and other enhanced benefits for autoworkers, such as profit-sharing payments and a $5,000 ratification bonus.
The 25% raises include an 11% increase upon ratification, followed by a 3% bump-up in the next three years and then a 5% increase in September 2027.
At GM, the union also made major gains in cutting down different tiers, or levels, of workers to be paid the same or similar to their traditional colleagues at assembly plants. UAW President Shawn Fain said some workers will receive an immediate raise of 89% if ratified by members.
“One of our central goals in this round of negotiations was the elimination of tiers,” Fain said during the broadcast. “While we didn’t win everything, we made enormous strides at GM. We did more to eliminate wage tiers than any of the Big Three.”
New workers added to the agreement include employees at GM’s Ultium Cells joint venture for battery cells, Fain reconfirmed Saturday. The battery workers will receive a raise of between $6 and $8 an hour, he said.
Fain on Saturday reiterated the union’s plans to use the record contracts with GM, Ford and Stellantis as leverage to unionize other automakers.
“We aren’t bashful or quiet about what our plans are: Our goal is to spend the next few years organizing auto workers across this country,” Fain said. “The Big Three aren’t the only auto companies making record profits. Auto workers at Toyota, Honda, Volkswagen, Hyundai and Tesla, they deserve record contracts. too.”
Toyota Motor earlier this week announced plans to hike wages at its U.S. factories. The new rates would see hourly manufacturing employees at top rates in Kentucky receive roughly 9% pay increases to $34.80 an hour – still below the more than $40 an hour top rate under the UAW’s tentative agreements with the Detroit automakers.
UAW members at Ford have already started voting on that tentative agreement. Most notably, 82% of workers at Ford’s Michigan Assembly Plant voted in support of the pact this week. The suburban Detroit plant was among the first to strike alongside other assembly plants with GM and Stellantis.
UAW members with Stellantis and GM are expected to vote on the deals over the next couple of weeks.
United Auto Workers President Shawn Fain gestures in solidarity with striking workers during a rally at UAW Local 551 on Saturday, Oct. 7, 2023, in Chicago.
John J. Kim | Tribune News Service | Getty Images
DETROIT – United Auto Workers President Shawn Fain wants to expand the union’s battle from the Detroit automakers to Tesla, Toyota Motor and other non-unionized automakers operating in the U.S.
The outspoken leader plans to use record contracts recently won after contentious negotiations and U.S. labor strikes with General Motors, Ford Motor and Chrysler-parent Stellantis to assist in the union’s embattled organizing efforts elsewhere.
“We’ve created the threat of a good example, and now we’re going to build on it,” Fain said Thursday night when discussing Stellantis’ tentative agreement. “We just went on strike like we’ve never been on strike before and won a historic contract as a result. Now we’re going to organize like we’ve never organized before.”
Doing so would greatly assist the union’s bargaining efforts and membership, which has been nearly halved from roughly 700,000 members in 2001 to 383,000 at the beginning of this year. UAW membership peaked at 1.5 million in 1979.
The UAW has previously failed to organize foreign-based automakers in the U.S. Most recently, plants with Volkswagen and Nissan Motor fell short of the support needed to unionize. The UAW has previously discussed organizing Tesla’s Fremont plant in California with little to no traction in those efforts.
It remains to be seen whether the recent efforts are gaining traction at any other automakers, but Fain has vowed to move beyond the “Big Three” — Ford, GM and Stellantis — and expand to the “Big Five or Big Six” by the time its 4½-year contracts with the Detroit automakers expire in April 2028.
The deals include 25% wage increases that would boost top pay to more than $40 an hour, reinstatement of cost-of-living adjustments, enhanced profit-sharing payments and other significant pay, healthcare and workplace benefits. The contracts must still be ratified.
The union has already received significant interest from non-union automakers in light of the tentative agreements, Fain said. And last month, he rejected comments from Ford Chair Bill Ford arguing the company and union should be working together to battle non-American automakers.
“Workers at Tesla, Toyota, Honda, and others are not the enemy — they’re the UAW members of the future,” Fain said.
Fain has taken particular aim at Toyota in recent days.
The automaker earlier this week confirmed plans to hike wages at its U.S. factories. The new rates would see hourly manufacturing employees at top rates in Kentucky receive roughly 9% pay increases to $34.80 an hour.
Fain on Thursday called that pay raise “the UAW bump,” joking that UAW stands for “U Are Welcome” to join the union’s movement.
UAW President Shawn Fain marches with UAW members through downtown Detroit after a rally in support of United Auto Workers members as they strike the Big Three auto makers on September 15, 2023 in Detroit, Michigan.
Bill Pugliano | Getty Images
“Toyota isn’t giving out raises out of the goodness of their heart,” Fain said. “They could have just as easily raised wages a month ago or a year ago. They did it now because the company knows we’re coming for ’em.”
Toyota, which has 49,000 hourly and salaried U.S. workers, said the “decision to unionize is ultimately made by our team members.”
“By engaging in honest, two-way communication about what’s happening in the company, we aim to foster positive morale which ultimately leads to increased productivity,” the company said Friday in an emailed statement. “Working together has provided a history of stable employment and income for our team members.”
The UAW has so far not been able to establish enough support to force an organizing vote at Tesla’s facilities, including its Fremont, California, plant where the union previously represented workers when it was a GM-Toyota joint venture.
Fain on Thursday told Bloomberg News he believes organizing Tesla and taking on CEO Elon Musk is “doable.”
“We can beat anybody,” Fain told Bloomberg. “It’s gonna come down to the people that work for him deciding if they want their fair share… or if they want him to fly himself to outer space at their expense.”
Still, Musk has historically clashed with union proponents.
As some workers sought to form a union at the company’s Fremont factory in in 2017 and 2018, Tesla was paying a consultancy named MWW PR to monitor employees in a Facebook group and on social media more broadly, as CNBC previously reported.
Elon Musk, CEO of Tesla and owner of X, arrives for the Inaugural AI Insight Forum in Russell Building on Capitol Hill, on Wednesday, September 13, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
Tesla also terminated the employment of a union activist named Richard Ortiz in 2017. And in 2018, Musk said in a tweet, “Nothing stopping Tesla team at our car plant from voting union. Could do so tmrw if they wanted. But why pay union dues & give up stock options for nothing?”
The tweet violated federal labor laws, the National Labor Relations Board later found.
An administrative court ordered Tesla to reinstate Ortiz and to have Musk delete his tweet, which it concluded had threatened workers’ compensation. Tesla appealed the ruling, and Musk’s offending post remains on the social media platform which Musk now owns, has rebranded as X and runs as CTO and executive chairman.
In February, a different group of organizers filed a complaint with the NLRB claiming that Tesla had fired more than 30 employees at its Buffalo facility in retaliation for a union push there by Tesla Workers United. Tesla called the workers’ allegations false, saying 4% of its Autopilot data labeling team in Buffalo had been terminated due to performance issues.
The Equal Employment Opportunity Commission, the federal agency responsible for enforcing civil rights laws against workplace discrimination, sued Tesla in September, alleging widespread racist harassment of Black workers, and retaliation against those who spoke out.
And in late October, just over 100 of Tesla’s service employees in Sweden, members of the industrial labor group IF Metall, walked off the job for a short strike. Hundreds of mechanics and technicians at non-Tesla shops also agreed not to repair any of the EV makers’ cars in solidarity. However, Tesla has so far refused to negotiate with IF Metall.
Tesla did not immediately respond to a request for comment.
A couple of lesser-known chip companies and a battery maker have confirmed growing fears among investors about the slowdown in electric-vehicle and overall auto sales, which appears likely to continue into next year.
Monday was loaded with bad news from companies that make industrial chips for the auto industry, as earnings reports from On Semiconductor Corp. ON, -21.77%
in the morning and Lattice Semiconductor Inc. LSCC, -4.05%
in the afternoon disappointed Wall Street with their forecasts.
If inflation and high interest rates continue into next year, which is feasible, the slump in auto sales is expected to continue.
“We think it will carry through into the first part of next year, with most cycles running six to nine months,” said David Williams, an analyst with Benchmark who had predicted that the outlook for On Semi would have to be tempered. “However, the reduced consumer buying power and overall macro backdrop will likely keep buyers on the sidelines for the next couple of quarters.”
On Semi said that because of the shortfall in an order from one unnamed automotive customer in Europe, it now expects to ship $200 million less this year of its silicon carbide chips, which are used in EVs. The company did not give further details on its customer, but pointed out that at $800 million, its 2023 revenue will still be four times higher than 2022.
Last year, On Semi touted a new plant in Hudson, N.H., to make chips out of silicon carbide, an energy-efficient semiconductor material made of silicon and carbon, and predicted those chips would exceed $1 billion in sales in 2023.
“EVs are going to grow,” On Semi Chief Executive Hassane El-Khoury said Monday. “They’re going to grow for us in the fourth quarter as well. It’s just not going to grow in the fourth quarter at the rate that we expected… I think EVs are a long-term growth opportunity — even with the backdrop of a lot of the headlines that we’re seeing, customer designs have not slowed down.”
Even as company executives spun the positives, investors were rattled and On’s shares tumbled nearly 22%. Lattice Semiconductor also disappointed Wall Street with its outlook for the fourth quarter. Lattice sells chips that are used in advanced driver-assistance systems in cars, and shares tumbled 13% in extended trading after its fourth-quarter outlook came in lower than expected, due to fewer customers in Asia.
“In the last kind of four to six weeks of Q3, we started to see demand soften from our industrial and automotive customers,” Lattice CEO Jim Anderson told analysts. “I would say that it was really localized to the Asia geography, and we expect that softness we started to see at the end of Q3 extend into the current quarter.”
Semiconductor companies are often harbingers of future end-product demand in a wide variety of industries. Now that automakers use so many semiconductors, they can also be a big indicator of auto demand, especially in the hot arena of EVs. And those indicators don’t look good in the short term.
The United Auto Workers said late Monday it has reached a tentative agreement with General Motors Co. GM, +0.51%,
the third and last of the Big Three carmakers to have such a deal with its workers. GM workers on strike will return to their jobs as the agreement goes through a ratification process. “Like the agreements with Ford F, -1.91%
and Stellantis STLA, -0.22%,
the GM agreement has turned record profits into a record contract,” the union said. “The deal includes gains valued at more than four times the gains from the union’s 2019 contract.” That year, the UAW had a strike at GM only; this year, workers at several Big Three facilities walked out, a break with tradition for the union. The tentative agreement with GM grants 25% base-wage increases through the four years of the contract, cumulatively raising the top wage by 33% plus cost-of-living adjustments to more than $42 an hour, the union said. GM’s starting wage will increase by 70% compounded with estimated COLA to over $30 an hour. Shares of GM edged lower in the extended session Monday after ending the regular trading day up 0.5%.
Shares of General Motors Co. GM, +0.04%
bounced 1.2% off a 3 1/2-year low in morning trading Monday, after CNBC reported that the automaker reached an tentative deal with the United Auto Workers that would end the six-week long labor strike. The report comes a day after the UAW widened its strike against GM, as the Associated Press reported, hours after a tentative deal was reached with fellow Big 3 automaker Stellantis N.V. STLA, -0.19%
and about a week after Ford Motor Co. F, -1.61%
also reached a deal. CNBC reported that the UAW’s 4 1/2-year agreement with GM includes a 25% wage increase, including a 68% increase in starting hourly wages to $28 an hour. and UAW didn’t immediately respond to a request for comment. The stock, which closed Friday at the lowest price since Aug. 7,. 2020, has tumbled 28.1% over the past three months while the S&P 500 SPX, +0.81%
has shed 9.2%.
Lana Payne celebrates on stage as Unifor, Canada’s largest private sector union, announce Lana Payne as their new president to replace outgoing leader Jerry Dias in Toronto, Ontario, Canada August 10, 2022.
Cole Burston | Reuters
DETROIT – After reaching a tentative agreement Saturday with the United Auto Workers union, Chrysler-parent Stellantis is now facing a national labor strike in Canada.
Canadian union Unifor called a national strike of more than 8,200 autoworkers early Monday morning after the sides failed to reach a new agreement by 11:59 p.m. Sunday.
The Canadian work stoppage comes two days after the Stellantis reached a tentative deal for roughly 43,000 U.S. autoworkers with the UAW after roughly six weeks of targeted strikes that began Sept. 16.
The new strikes in the Canadian province of Ontario affect two large assembly plants that produce the Chrysler 300 sedan and Pacifica minivan and Dodge Challenger and Charger muscle cars.
The latter vehicles, produced at Stellantis’ Brampton Assembly, are specifically notable, as the company is producing the final traditional V-8 models of the Dodge muscle cars ahead of production stopping at year’s end.
The Canadian work stoppage comes nearly three weeks after Unifor launched a roughly 12-hour national strike against General Motors after the sides failed to reach a tentative agreement by a union-set deadline.
Unifor, which represents 18,000 Canadian workers at the Detroit automakers, took a more traditional approach to its negotiations than its U.S. counterpart. The Canadian union is negotiating with each automaker separately and using a deal first reached last month with Ford as a “pattern” for GM and Stellantis.
That traditional patterned-bargaining approach runs counter to the UAW’s new strategy of bargaining with all three automakers at once.
The UAW has been gradually increasing the strikes since the work stoppages began after the sides failed to reach tentative agreements by Sept 14. The targeted, or “stand-up,” strikes are taking place instead of national walkouts.
However, once the UAW reached a tentative agreement, which must still be ratified by members, Wednesday with Ford Motor, it has used that deal as a template for proposals with Stellantis and GM.
An Amazon.com Inc worker prepares an order in which the buyer asked for an item to be gift wrapped at a fulfillment center in Shakopee, Minnesota, U.S., November 12, 2020.
Amazon.com Inc | Reuters
The initial third-quarter report on gross domestic product showed consumer spending zooming higher by 4% percent a year, after inflation, the best in almost two years. September’s retail sales report showed spending climbing almost twice as fast as the average for the last year. And yet, bears like hedge-fund trader Bill Ackman argue that a recession is coming as soon as this quarter and the market has entered correction territory.
For an economy that rises or falls on the state of the consumer, third-quarter earnings data supports a view of spending that remains mostly good. S&P 500 consumer-discretionary companies that have reported through Oct. 25 saw an average profit gain of 15%, according to CFRA — the biggest revenue gain of the stock market’s 11 sectors.
“People are kind of scratching their heads and saying, ‘The consumer is holding up better than expected,’” said CFRA Research strategist Sam Stovall said. “Consumers are employed. They continue to buy goods as well as pursue experiences. And they don’t seem worried about debt levels.”
How is this possible with interest rates on everything from credit cards to cars and homes soaring?
It’s the anecdotes from bellwether companies across key industries that tell the real story: Delta Air Lines and United Airlines sharing how their most expensive seats are selling fastest. Homeowners using high-interest-rate-fighting mortgage buydowns. Amazon saying it’s hiring 250,000 seasonal workers. A Thursday report from Deckers Outdoor blew some minds — in what has been a tepid clothing sales environment — by disclosing that embedded in a 79% profit gain that sent shares up 19% was sales of Uggs, a mature line anchored by fuzzy boots, rising 28%.
The picture they paint largely matches the economic data — generally positive, but with some warts. Here is some of the key evidence from from the biggest company earnings reports across the market that help explain how companies and the American consumer are making the best of a tough rate environment.
How homebuilders are solving for mortgages rates
No industry is more central to the market’s notion that the consumer is falling from the sky than housing, because the number of existing home sales have dropped almost 40% from Covid-era peaks. But while Coldwell Banker owner Anywhere Real Estate saw profit fall by half, news from builders of new homes has been pretty good.
Most consumers have mortgages below 5%, but for new homebuyers, one reason that rates are not biting quite as sharply as they should is that builders have figured out ways around the 8% interest rates that are bedeviling existing home sellers. That helps explains why new home sales are up this year. Homebuilders are dipping into money that previously paid for other incentives to pay for offering mortgages at 5.75% rather than the 8% level other mortgages have hit. At PulteGroup, the nation’s third-biggest builder, that helped drive an 8% third-quarter profit jump and 43% climb in new home orders for delivery later, much better than the government-reported 4.5% gain in new home sales year-to-date.
“What we’ve done is simply redistribute incentives we’ve historically offered toward cabinets and countertops, and redirected those to interest rate incentives,” PulteGroup CEO Ryan Marshall said. “And that has been the most powerful thing.”
The mechanics are complex, but work out to this: Pulte sets aside about $35,000 for incentives to get each home to sell, or about 6% of its price, the company said on its earnings conference call. Part of that is paying for a mortgage buydown. About 80% to 85% of buyers are taking advantage of the buydown offer. But many are splitting the funds, mixing a smaller rate buydown and keeping some goodies for the house, the company said.
Wells Fargo economist Jackie Benson said in a report that builders may struggle to keep this strategy going if mortgage rates stay near 8%, but new-home prices have dropped 12% in the last year. In her view, incentives plus bigger price cuts than most existing homes’ owners will offer is giving builders an edge.
At auto companies, price cuts are in, and more are coming
Car sales picked up notably in September, rising 24% year-over-year, more than twice the year-to-date gain in unit sales. But they were below expectations at electric-vehicle leader Tesla, which blamed high interest rates, and at Ford.
“I just can’t emphasize this enough, that for the vast majority of people buying a car it’s about the monthly payment,” Tesla CEO Elon Musk said on its earnings call. “And as interest rates rise, the proportion of that monthly payment that is interest increases.”
Maybe, but that’s not what’s happening at General Motors, even if investor reaction to good numbers at GM was muted because of the strike by the United Auto Workers union.
GM beat earnings expectations by 40 cents a share, but shares fell 3% because of investor worries about the strike, which forced GM to withdraw its fourth-quarter earnings forecast on Oct. 24. Ford, which settled with the UAW on Oct. 25, said the next day it had a “mixed” quarter, as profit missed Wall Street targets due to the strike. Consumers came through, as unit sales rose 7.7% for the quarter, with truck and EV sales both up 15%. GM CEO Mary Barra said on GM’s analyst call that the company gained market share, posting a 21% gain in unit sales despite offering incentives below the industry average.
“While we hear reports out there in the macro that consumer sentiment might be weakening, etc., we haven’t seen that in demand for our vehicles,” GM CFO Paul Jacobson told analysts. But Ford CFO John Lawler said car prices need to decline by about $1,800 to be as affordable as they were before Covid. “We think it’s going to happen over 12 to 18 months,” he said.
Tesla’s turnaround plan turns on continuing to lower its cost of producing cars, which came down by about $2,000 per vehicle in last year, the company said. Along with federal tax credits for electric vehicles, a Model Y crossover can be had for about $36,490, or as little as $31,500 in states with local tax incentives for EVs. That’s way below the average for all cars, which Cox Automotive puts at more than $50,000. But Musk says some consumers still aren’t convincible. .
“When you look at the price reductions we’ve made in, say, the Model Y, and you compare that to how much people’s monthly payment has risen due to interest rates, the price of the Model Y is almost unchanged,” Musk said. “They can’t afford it.”
Most banks say the consumer still has cash, but not Discover
To know how consumers are doing, ask the banks, which disclose consumer balances quarterly. To know if they’re confident, ask the credit card companies (often the same companies) how much they are spending.
In most cases, financial services firms say consumers are doing well.
At Bank of America, consumer balances are still about one-third higher than before Covid, CEO Brian Moynihan said on the company’s conference call. At JPMorgan Chase, balances have eroded 3% in the last year, but consumer loan delinquencies declined during the quarter, the company said.
“Where am I seeing softness in [consumer] credit?” said chief financial officer Jeremy Barnum, repeating an analyst’s question on the earnings call. “I think the answer to that is actually nowhere.”
Among credit card companies, the “resilient” is still the main story. MasterCard, in fact, used that word or “resilience” eight times to describe U.S. consumers in its Oct. 26 call.
“I mean, the reality is, unemployment levels are [near] all-time record lows,” MasterCard chief financial officer Sachin Mehra said.
At American Express, which saw U.S. consumer spending rise 9%, the mild surprise was the company’s disclosure that young consumers are adding Amex cards faster than any other group. Millennials and Gen Zers saw their U.S. spending via Amex rise 18%, the company said.
“Guess they’re not bothered by the resumption of student loan payments,” Stovall said.
The major fly in the ointment came from Discover Financial Services, one of the few banks to make big additions to its loan loss reserves for consumer debt, driving a 33% drop in profit as Discover’s loan chargeoffs doubled.
Despite the fact that U.S. household debt burdens are almost exactly the same as in late 2019, and declined during the quarter, according to government data, Discover chief financial officer John Greene said on its call, “Our macro assumptions reflect a relatively strong labor market but also consumer headwinds from a declining savings rate and increasing debt burdens.”
At airlines, still no sign of a travel recession
It’s good to be Delta Air Lines right now, sitting on a 59% third-quarter profit gain driven by the most expensive products on their virtual shelves: First-class seats and international vacations. Also good to be United, where higher-margin international travel rose almost 25% and the company is planning to add seven first-class seats per departure by 2027. Not so good to be discounter Spirit, which saw shares fall after reporting a $157 million loss.
“With the market continuing to seemingly will a travel recession into existence despite evidence to the contrary from daily [government] data and our consumer surveys, Delta’s third-quarter beat and solid fourth-quarter guide and commentary should finally put the group at ease about a consumer “cliff,” allow them to unfasten their seatbelts and walk about the cabin,” Morgan Stanley analyst Ravi Shanker said in a note to clients.
One tangible impact: United is adding 20 planes this quarter, though it is pushing 12 more deliveries into 2024, while Spirit said it’s delaying plane deliveries, and focusing on its proposed merger with JetBlue and cost-cutting to regain competitiveness as soft demand for its product persists into the holiday season.
As has been the case throughout much of 2023, richer consumers — who contribute the greater share of spending — are doing better than moderate-income families, Sundaram said.
The goods recession is for real
Whirlpool, Ethan Allen and mattress maker Sleep Number all saw their stocks tumble after reporting bad earnings, all of them experiencing sales struggles consistent with the macro data.
This follows a trend now well-entrenched in the economy: people stocked up on hard goods, especially for the house, during the pandemic, when they were stuck at home more. All three companies saw shares surge during Covid, and growth has slacked off since as they found their markets at least partly saturated and consumers moved spending to travel and other services.
“All of the stimulus money went to the furniture industry,” Sundaram said, exaggerating for effect. “Now they’ve been falling apart for the last year.”
Ethan Allen sales dropped 24%, as the company said a flood in a Vermont factory and softer demand were among the causes. At Whirlpool, which said in second-quarter earnings that it was moving to make up slowing sales to consumers by selling more appliances to home builders, “discretionary purchases have been even softer than anticipated, as a result of increased mortgage rates and low consumer confidence,” CEO Marc Bitzer said during Thursday’s earnings call. Its shares fell more than 20%.
Amazon’s $1.3 billion holiday hiring spree
Amazon is making its biggest-ever commitment to holiday hiring, spending $1.3 billion to add the workers, mostly in fulfillment centers.
That’s possible because Amazon has reorganized its warehouse network to speed up deliveries and lower costs, sparking 11% sales gains the last two quarters as consumers turn to the online giant for more everyday repeat purchases. Amazon also tends to serve a more affluent consumer who is proving more resilient in the face of interest rate hikes and inflation than audiences for Target or dollar stores, according to CFRA retailing analyst Arun Sundaram said.
“Their retail sales are performing really well,” Sundaram said. “There’s still headwinds affecting discretionary sales, but everyday essentials are doing really well.
All of this sets the stage for a high-stakes holiday season.
PNC still thinks there will be a recession in early 2024, thanks partly to the Federal Reserve’ rate hikes, and thinks investors will focus on sales of goods looking for more signs of weakness. “There’s a lot of strength for the late innings” of an expansion, said PNC Asset Management chief investment officer Amanda Agati.
Sundaram, whose firm has predicted that interest rates will soon drop as inflation wanes, thinks retailers are in better shape, with stronger supply chains that will allow strategic discounting more than last year to pump sales. The Uggs sales outperformance was attributed to improved supply chains and shorter shipping times as the lingering effects of the pandemic recede.
“Though there are headwinds for the consumer, there’s a chance for a decent holiday season,” he said, albeit one hampered still by the inflation of the last two years. “The 2022 holiday season may have been the low point.”
Check out the companies making headlines in midday trading. Intel — Shares of the chipmaker popped 9.6% Friday, a day after Intel reported third-quarter results that topped analysts’ expectations. Intel also gave strong guidance for the current quarter, and CEO Pat Gelsinger said the company plans to cut costs by about $3 billion this year. Dexcom — Shares of Dexcom, which distributes continuous glucose monitoring systems, soared 11.2% after the company posted stronger-than-expected quarterly results and raised its full-year revenue forecast. Stanley Black & Decker — Shares rallied more than 8% Friday after the industrial tool maker posted an earnings beat in the third quarter. The company also issued full-year earnings guidance between $1.10 and $1.40 per share, coming in higher than prior guidance of 70 cents to $1.30 per share and the consensus estimate. Meanwhile, revenue in the third quarter came in below expectations. Juniper Networks — The network management software provider climbed 6.2% after exceeding Wall Street’s expectations on earnings and revenue for the third quarter. Juniper earned 60 cents per share on an adjusted basis, while analysts surveyed by FactSet expected 55 cents per share. Revenue came out at $1.4 billion for the period, slightly surpassing the average analyst forecast of $1.39 billion. Deckers Outdoor — The footwear and apparel company climbed 19% Friday, a day after beating analysts’ expectations for the second fiscal quarter and raising full-year guidance. Bank of America reiterated its buy rating on the stock Friday, noting the company’s Ugg and Hoka brands are “firing on all cylinders.” Chipotle Mexican Grill — Chipotle shares led the market higher Friday, gaining 8% after the company’s third-quarter earnings topped expectations. The fast-food chain reported $11.36 in adjusted earnings per share, while analysts surveyed by LSEG, formerly known as Refinitiv, were expecting $10.55 per share. Chipotle also saw its year-over-year restaurant-level operating margin rise. Enphase Energy — The solar company’s stock dropped about 15% after reporting mixed third-quarter results and sharing a disappointing revenue forecast for the current period. Enphase Energy said it expects revenue between $300 million and $350 million for the quarter, versus the $584 million expected by analysts polled by LSEG. Amazon — Shares of the e-commerce giant continued into the green on Friday, surging 8% after reporting strong third-quarter results and showing a 13% jump in revenue for the period. Chevron — The energy stock dropped more than 5.6% to hit a 52-week low following a disappointing earnings report. Chevron’s earnings fell to $3.05 per share, excluding items, on $54.08 billion in revenue. While profits fell short of Wall Street’s expectations, revenue topped estimates. Ford Motor — Shares of the automobile maker plunged nearly 10% Friday. Ford reported results for the third quarter that fell short of Wall Street’s expectations, and the company pulled its previous guidance as it copes with the nearly six-week long UAW strike. Capital One — Capital One shares added 10.3% after the financial services company posted adjusted earnings of $4.45 per share, which topped expectations. — CNBC’s Alex Harring, Samantha Subin, Yun Li and Hakyung Kim contributed reporting.
Ford workers produce the electric F-150 Lightning pickup on Dec. 13, 2022 at the automaker’s Ford Rouge Electric Vehicle Center (REVC).
Michael Wayland | CNBC
As a result, it’s postponing about $12 billion in planned spending on new EV manufacturing capacity.
Customers’ reluctance to pay extra for EVs has complicated Ford’s ambitious and expensive plans to sharply increase production of those vehicles. While Ford’s – and the industry’s – sales of EVs are growing, they aren’t growing at the pace Ford had expected.
Ford executives emphasized that the company isn’t cutting back its spending on future electric vehicle models. But it now plans to ramp up its EV manufacturing capacity, and its spending on that capacity, more gradually than previously planned.
“We’re not moving away from our second generation [EV] products,” CFO John Lawler said in a media briefing Thursday. “We are, though, looking at the pace of capacity that we’re putting in place. We are going to push out some of that investment.”
Ford Motor said Thursday that many customers in North America are no longer willing to pay a premium for an electric vehicle over an internal-combustion or hybrid alternative.
Lawler said that Ford will postpone about $12 billion in planned spending on manufacturing capacity for EVs, including a planned second battery plant at a new campus in Kentucky. But, he noted, construction of Blue Oval City – Ford’s new EV manufacturing campus in Tennessee – will continue as originally planned.
“The customer is going to decide what the volumes are,” Lawler said. “Ford is able to balance production of gas, hybrid and electric vehicles to match the speed of EV adoption in a way that others can’t.”
As part of its third-quarter earnings report, Ford said on Thursday that its electric-vehicle business unit, called Ford Model e, lost $1.3 billion on an operating basis in the period. That’s roughly double its year-ago loss, despite a 26% increase in revenue.
Through the first three quarters of 2023, Model e posted an operating loss of about $3.1 billion, on track with Ford’s previous guidance calling for a full-year operating loss of $4.5 billion for the Model e business unit.
Ford withdrew all of its 2023 guidance Thursday in light of its tentative deal with the United Auto Workers labor union.
Ford Motor Co.’s stock dropped 4% after hours Thursday after the carmaker reported lower-than-expected quarterly earnings and withdrew its guidance for the year, citing the pending agreement with the United Auto Workers.
Ford F, -1.65%
also reported an adjusted loss of $1.3 billion for its EV unit, which was wider than Wall Street expected, saying that customers interested in EVs are “unwilling” to pay the vehicles’ premium prices. The company paused billions of long-term investment in EVs due to that disconnect.
“Our business is never short of challenges, especially right now with the evolution of the EV market,” Chief Executive Jim Farley told analysts in a call following results.
Ford earned $1.2 billion, or 30 cents a share, in the third quarter, swinging from a loss of $827 million, or 21 cents a share, in the year-ago period.
Adjusted for one-time items, Ford earned 39 cents a share. Adjustments included a $2.7 billion impairment charge related to the investment in the shuttered, Ford-backed Argo AI driverless-car company.
Revenue rose 11% to $43.8 billion, the carmaker said.
Analysts polled by FactSet expected Ford to report adjusted earnings of 46 cents a share on sales of $43.94 billion.
Ford said that its EV business segment recorded an EBIT loss of $1.3 billion, thanks to “continued investment in next-generation EVs and challenging market dynamics.”
Many customers in North America interested in EVs are “unwilling to pay premiums for them,” which “sharply” flattens EV prices and profit, Ford said.
The carmaker said it was “poised to deliver profitability” within its previous EBIT guidance range of $11 billion to $12 billion before it decided to withdraw the year’s outlook pending the agreement with its workers.
The results come as striking employees at Ford are returning to work after the carmaker and the United Auto Workers reached a tentative agreement, which was announced late Wednesday.
The agreement is going through ratification steps, and negotiations between the union and General Motors Co. GM, -1.59%
and Stellantis NV STLA, -2.17%
are said to be “active.”
On the call with analysts, Farley said that once the deal is ratified, Ford will provide Wall Street “a deeper look at the contract and its impact on our business.”
Ford, GM and Stellantis each have had several factories and distribution centers offline due to the strike. GM and Stellantis are expected to follow with agreements of their own.
Ford shares have underperformed the broader equity market, and are losing about 1.6% so far this year, which contrasts with gains of around 8% for the S&P 500 index SPX.
The underperformance holds for the past three months, with Ford shares down 16% compared with the index’s 8% drop in the period.
The union said that the current four-year deal grants a 25% increase in base wages through April 2028. It will cumulatively raise the top wage at Ford by more than 30% to more than $40 an hour, and starting wages by 68% to over $28 an hour.
U.S. stock futures slid Monday morning as the 10-year Treasury note yield again ticked above 5% — a level it hit Thursday for the first time since 2007. Earnings and inflation data will help to shape whether equities bounce back from a down week. The Dow Jones Industrial Average fell 1.6%, the S&P 500 dropped 2.4% and the Nasdaq Composite shed 3.2% last week. A string of major earnings reports are due Tuesday through Thursday. The personal consumption expenditures data out Friday will offer clues about whether the Federal Reserve will hike interest rates again this year. Follow live market updates here.
The tech sector, which has largely driven market gains this year, will headline a busy stretch of earnings this week. Other key reports will come from the transportation and food and beverage spaces. Investors will focus on General Motors and Ford results as executives will answer questions about the effects of the more than month-long United Auto Workers strike. Here are the major reports this week:
The first humanitarian aid convoys since the start of the Israel-Hamas war arrived in Gaza over the weekend, and more shipments of food, water and medical supplies are expected Monday. U.S. President Joe Biden spoke to Israeli Prime Minister Benjamin Netanyahu on Sunday, and said there will be a “continued flow” of aid into Gaza. Israel intensified airstrikes on the besieged area in recent days, as it holds off on a potential ground invasion. Leaders around the globe are trying to prevent the conflict from turning into a broader war. Follow live updates on the conflict here.
Another country is probing Alphabet’s Google for potential anticompetitive practices. Japan’s Fair Trade Commission said it would investigate potential antitrust violations related to Google’s search engine and its apps and platforms. The move in Japan follows scrutiny over allegations of anticompetitive conduct in the European Union and United States. A Google spokesperson told CNBC that Android is an open platform that ensures “users always have a choice to customize their devices to suit their needs, including the way they browse and search the internet, or download apps.”
– CNBC’s Lisa Kailai Han, Ruxandra Iordache, Matt Clinch and Arjun Kharpal contributed to this report.
— Follow broader market action like a pro on CNBC Pro.
Gold bars of different sizes lie in a safe on a table at the precious metals dealer Pro Aurum.
Sven Hoppe | Picture Alliance | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Tesla clocks worst week of the year Tesla shares dropped more than 15% last week to close at $211.99 on Friday, marking the worst weekly performance for the stock this year as CEO Elon Musk sounded pessimistic about macroeconomic issues on a recent earnings call. Shares of the electric automaker are still up 96% year-to-date.
Big earnings week Investors will be watching out for an action-packed week of earnings as companies including Microsoft, Meta Platforms, Amazon, Alphabet, General Motors and Ford among others gear up to post their quarterly results. The carmakers will be under the radar this week amid ongoing strikes and contract negotiations with the United Auto Workers union.
X to launch new subscription tiers Owner Elon Musk said X, the social media service formerly known as Twitter, will launch two new tiers of subscriptions for users. One tier will be “lower cost with all features, but no reduction in ads,” while the other is “more expensive, but has no ads,” Musk said.
[PRO] The U.S. is trying to tighten the screws on Chinese AI The artificial intelligence behind ChatGPT-like products and autonomous driving is driving enormous demand for Nvidia’s chips in China. In the past week, however, analysts cut their Nvidia price targets after news the U.S. plans to ban the sale of more high-end semiconductors to China. Here’s what that means for stocks.
Rising Treasury yields, looming interest rate hikes to fight inflation and the heightening conflict in the Middle East drove investors away from risky assets last week.
The yield on the benchmark 10-year Treasury crossed 5% for the first time since 2007 on Thursday, a level perceived by markets as a potential drag on the U.S. economy as it could translate to higher rates on mortgages, credit cards, auto loans and more.
A move into safe-haven gold seemed like a sensible bet, given the worsening crisis in the Middle East. Gold was up 2.5% last week, recording its second consecutive weekly rise after adding 5.22% in the prior week.
Investors are now bracing for a heavy week of earnings as Big Tech companies including Alphabet, Amazon, Meta and Microsoft will take centerstage.
“We’re hopefully going to see some continued positive strength there on the economy and what they see going forward,” said Ryan Detrick, chief market strategist at Carson Group. “The headlines are scary, for sure. But the fundamentals to us are pretty strong. We’re still seeing earnings season that’s going to come in better than expected.”
This will arrive after a mixed batch of earnings from behemoths like Tesla and Netflix last week. Tesla marked its biggest weekly decline after Elon Musk shared his pessimistic view on the macroeconomic landscape, while Netflix shares soared as markets cheered its new ad-tier subscription plan.
Given the huge role advertisers and subscriptions play for the bottom lines of such firms, it was no surprise that Musk turned his attention to improving the usability of social media platform X, formerly known as Twitter.
Musk said. X is gearing up to launch two new tiers of subscriptions for users, in hopes that it could improve the company’s finances and open new revenue streams. Musk’s sweeping changes across the company, including firing most of its employees and reinstating previously banned accounts, scared advertisers away.
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Tesla clocks worst week of the year Tesla shares dropped more than 15% last week to close at $211.99 on Friday, marking the worst weekly performance for the stock this year as CEO Elon Musk sounded pessimistic about macroeconomic issues on a recent earnings call. Shares of the electric automaker are still up 96% year-to-date.
Big earnings week Investors will be watching out for an action-packed week of earnings as companies including Microsoft, Meta Platforms, Amazon, Alphabet, General Motors and Ford among others gear up to post their quarterly results. The carmakers will be under the radar this week amid ongoing strikes and contract negotiations with the United Auto Workers union.
X to launch new subscription tiers Owner Elon Musk said X, the social media service formerly known as Twitter, will launch two new tiers of subscriptions for users. One tier will be “lower cost with all features, but no reduction in ads,” while the other is “more expensive, but has no ads,” Musk said.
[PRO] Earnings playbook Big Tech takes center stage in what could be a make-or-break week for S&P 500 earnings. About 150 S&P 500 companies are slated to report, including Microsoft, Meta Platforms, Amazon and Alphabet. Those results come during a tough time for Wall Street, as higher rates and conflict in the Middle East rattle investor sentiment. Here’s how to trade a busy week of earnings.
Rising Treasury yields, looming interest rate hikes to fight inflation and the heightening conflict in the Middle East drove investors away from risky assets last week.
The yield on the benchmark 10-year Treasury crossed 5% for the first time since 2007 on Thursday, a level perceived by markets as a potential drag on the U.S. economy as it could translate to higher rates on mortgages, credit cards, auto loans and more.
A move into safe-haven gold seemed like a sensible bet, given the worsening crisis in the Middle East. Gold was up 2.5% last week, recording its second consecutive weekly rise after adding 5.22% in the prior week.
Investors are now bracing for a heavy week of earnings as Big Tech companies including Alphabet, Amazon, Meta and Microsoft will take centerstage.
“We’re hopefully going to see some continued positive strength there on the economy and what they see going forward,” said Ryan Detrick, chief market strategist at Carson Group. “The headlines are scary, for sure. But the fundamentals to us are pretty strong. We’re still seeing earnings season that’s going to come in better than expected.”
This will arrive after a mixed batch of earnings from behemoths like Tesla and Netflix last week. Tesla marked its biggest weekly decline after Elon Musk shared his pessimistic view on the macroeconomic landscape, while Netflix shares soared as markets cheered its new ad-tier subscription plan.
Given the huge role advertisers and subscriptions play for the bottom lines of such firms, it was no surprise that Musk turned his attention to improving the usability of social media platform X, formerly known as Twitter.
Musk said. X is gearing up to launch two new tiers of subscriptions for users, in hopes that it could improve the company’s finances and open new revenue streams. Musk’s sweeping changes across the company, including firing most of its employees and reinstating previously banned accounts, scared advertisers away.
The United Auto Workers said Friday it has made progress in the negotiations with the Big Three carmakers, and didn’t announce any new plants that would expand its ongoing strike.
Nearly 34,000 workers at Ford Motor Co. F, +0.95%,
General Motors Co. GM, +1.13%
and Stellantis NV STLA, -0.37%
are on strike, with the most recent labor-movement expansion hitting Ford’s highly profitable Kentucky pickup truck factory earlier this month.
There was “serious movement” in negotiations at GM and Stellantis, UAW President Shawn Fain said Friday in an address to the membership.
“The bottom line is we’ve got cards left to play and they’ve money left to spend. That’s the hardest part of a strike. Right before a deal, is when there’s the most aggressive push for that last mile,” Fain said.
Earlier Friday, GM made new proposal to auto workers, reinstating cost-of-living adjustments and offering compounded raises of about 25% over four years.
Auto workers started the strike at the stroke of midnight Sept. 14, walking out at one plant each of GM, Ford, and Stellantis NV STLA, -0.37%.
The union expanded the labor action to more factories and facilities as the weeks went by.
Striking at all Big Three at once was a departure from the long-standing UAW tradition striking at one car company at a time, to save picket-line firepower and the strike fund.
During his address Friday, Fain vowed to intensify efforts to unionize at more auto plants.
“We are going to organize non-union auto companies like we’ve never organized before,” he said.
Tesla Inc. TSLA, -3.69%
has for years fended off efforts to unionize its factory in Fremont, Calif. Several foreign automakers have U.S. plants in the Southeast, where union traditions are not as the Midwest.
Striking United Auto Workers (UAW) members from the General Motors Lansing Delta Plant picket in Delta Township, Michigan September 29, 2023.
Rebecca Cook | Reuters
DETROIT – The United Auto Workers union believes there is “more to be won” in ongoing contract negotiations with the Detroit automakers following five weeks of labor strikes against the companies, UAW President Shawn Fain said Friday.
His comments come despite record contract offers from General Motors, Ford Motor and Stellantis that now include 23% hourly pay increases and other significantly enhanced benefits during the terms of the four and a half-year deal.
“There is more to be won,” Fain said during an online broadcast. “These are already record contracts, but they come at the end of decades of record decline. So it’s not enough to be the best ever, when auto workers have gone backwards over the last two decades. That’s a very low bar.”
Despite Fain’s comments, the union did not announce additional strikes Friday against any of the companies. He said the “bottom line is we’ve got cards left to play, and they’ve got money left to spend.”
Fain did not address a Friday report by Bloomberg that the union has asked for a 25% increase in general wages.
The union has not announced any additional strikes since initiating an unexpected walkout on Oct. 11 at Ford’s Kentucky Truck Plant that produces highly profitable pickup trucks and SUVs. That’s despite Ford having the best proposal regarding economics, as outlined Friday by Fain.
Fain spent quite a notable amount of time during the online broadcast discussing how the union plans to use these talks to assist in organizing non-union plans. He also heavily criticized the Monday comments of Ford Chair Bill Ford to bring an end to the negotiations.
“Bill Ford said it shouldn’t be Ford versus the UAW. He said it should be the UAW and Ford against foreign automakers,” Fain said. “I want to be crystal clear on one thing: The days of the UAW and Ford being a team to fight other companies are over … Non-union autoworkers are not the enemy. Those are our future union family.”
Ford said it remains “eager to conclude these negotiations with a contract” that benefits its workers, citing it’s “good that Mr. Fain acknowledged Ford’s contract offer ‘already’ is a record and remains the best one on the table.”
Stellantis said the sides “continue to be productive, building on the momentum from the past several weeks,” but declined to discuss specific details. GM declined to comment regarding Fain’s comments, citing details it released of its most recent offer earlier Friday.
The UAW hasn’t expanded strikes at GM since Sept. 29 or at Stellantis since Sept. 22, despite offers made this week not meeting details of Ford’s proposal from last week and Fain last week saying the union was initiating a “new phase” of strikes and contract negotiations.
“Right before a deal is when there’s the most aggressive push for that last mile. They just want to wait us out,” Fain said. “They want division. They want fear. They want uncertainty. And what we have is our solidarity.”
The strike at Ford’s Kentucky plant — responsible for $25 billion in revenue annually — marked a major escalation in the UAW’s targeted, or “stand-up,” strikes. It also represents a shift in strategy, as Fain had previously publicly announced the targets before the work stoppages occurred.
The UAW has been gradually increasing the strikes since the work stoppages began after the sides failed to reach tentative agreements by Sept 14.
About 34,000 U.S. automakers with the companies, or roughly 23% of UAW members covered by the expired contracts with the Detroit automakers, were on strike.
Here are details of current proposals by the companies to UAW:
Wages: All three automakers have offered a 23% pay increase over four and a half years.
Wage tiers: All three automakers have agreed to eliminate wage tiers at parts facilities where workers have historically been paid less than production-line workers.
Wage progression: Ford has offered a three-year progression to the top wage rate, a system that was in place from the mid-1990s until the aftermath of the 2008 economic crisis. GM has also offered a three-year progression, but only for current workers. GM wants a more gradual four-year progression for future hires. Stellantis has offered only a four-year progression.
Cost of living adjustments (COLA): Ford has offered to restore its COLA formula to the level last used in 2009, meeting the UAW’s demand. Fain said that GM is “approaching restoration but not fully there,” while Stellantis wants to delay cost-of-living adjustments by a year.
Job security: Ford and Stellantis have agreed to give the union the right to strike over plant closures, a key UAW demand. GM has so far rejected that demand.
Temporary workers: Ford has offered to convert current temp workers with 90 days of service to full-time employees, with a raise to $21 per hour for remaining and future temps. Whether those future temps will be converted to full-time employees automatically is still being negotiated, Fain said. GM has proposed to convert current and future temps with one year of service to full time employees, and has matched Ford with a $21 per hour wage for remaining and future temps. Stellantis agreed to convert “thousands” of current temps to full-time status, with a wage increase to $20 per hour for remaining and future temps. As with Ford, the automatic conversion of future temps is “still being negotiated,” Fain said.
Retirement plans: All three automakers have offered a $3 increase to pension benefits. Ford and Stellantis have offered to increase their 401(k) contributions to 9.5% plus $1 per hour. GM offered an increase to 8% plus $1.25 per hour.
Payments to retired workers: Ford offered annual lump sum payments of $250 to retired workers, with surviving spouses eligible to continue to receive the payments. GM offered a one-time lump sump payment of $1,000, with surviving spouses not eligible. Stellantis rejected all increases to retiree pay. Fain said all three offers were “deeply inadequate.”
Profit sharing: Ford offered to improve its existing profit-sharing formula by including profits from Ford Credit, its financing subsidiary, and to make temp workers eligible to receive profit-sharing payments. Stellantis and GM both want to maintain their current profit-sharing formulas, but GM has offered to make temp workers with 1,000 hours of service eligible to receive payments. Stellantis has not offered to make its temporary workers eligible to receive profit-sharing payments.
Work-life balance: All three automakers have offered to make Juneteenth an official paid holiday and have offered two weeks of paid parental leave.
The top 10 things to watch Friday, Oct. 20 1. Will the yield on the 10-year Treasury breach 5% Friday, and how will markets react? U.S. stocks are down in premarket trading, with S & P 500 futures falling 0.27%, potentially leading to another disappointing week for equities. Stocks have been held back by high bond yields and strengthening oil prices. 2. American Express (AXP) reports a big third-quarter earnings beat Friday, with earnings-per-share (EPS) of $3.30, ahead of analysts’ forecasts for $2.94 a share. Revenue climbs by 13%, boosted by travel-and-entertainment spending. Millennial and Gen-Z spending rises by 18% in the U.S. 3. Oilfield services firm Schlumberger (SLB) misses slightly on revenue expectations for the third quarter, but beats adjusted EPS estimates by a penny. The company has reported nine-consecutive quarters of double-digit, year-over-year growth in its international business, and expects sequential revenue growth in the fourth quarter. 4. UBS assumes coverage on a handful of drug stocks, including Club name Eli Lilly (LLY). The bank designates Eli Lilly a buy, with a price target of $710 a share, saying it expects “meaningful upward revisions” for diabetes-and-obesity treatment Mounjaro . 5. Intuitive Surgical (ISRG) reports a mixed quarter, as the company continues to see pressure on its bariatrics business due to the rise in GLP-1 obesity drugs. This used to be the company’s largest source of procedure growth. 6. General Motors (GM) is reportedly close to reaching a tentative agreement with the United Auto Workers union that would resolve a month-long strike, which has also engulfed Club name Ford Motor (F) and Stellantis NV (STLA), according to Bloomberg. 7. Deutsche Bank upgrades Union Pacific (UNP) to a buy rating, while slightly raising its price target to $258 a share, up from $257. The firm cites improving U.S. rail volumes and increasing confidence around new CEO Jim Vena. 8. Wolfe Research upgrades Club holding Morgan Stanley (MS) to a neutral-equivalent rating from underperform, without a price target. Meanwhile, Wednesday’s post-earnings sell-off of the bank stock was an overreaction. 9. JPMorgan reiterates Club holding Amazon (AMZN) as its best idea in the internet sector on the expectation that revenue growth at cloud unit Amazon Web Services will accelerate in the second half of this year, while North American retail margins expand. 10. Goldman Sachs lowers its price target on Club name Walt Disney (DIS) to $125 a share, down from $128, while maintaining a buy rating on the stock. The firm asks: is the stock is now at the point of peak uncertainty? Sign up for Jim Cramer’s Top 10 Morning Thoughts on the Market email newsletter for free . (See here for a full list of the stocks at Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
1. Will the yield on the 10-year Treasury breach 5% Friday, and how will markets react? U.S. stocks are down in premarket trading, with S&P 500 futures falling 0.27%, potentially leading to another disappointing week for equities. Stocks have been held back by high bond yields and strengthening oil prices.
2. American Express (AXP) reports a big third-quarter earnings beat Friday, with earnings-per-share (EPS) of $3.30, ahead of analysts’ forecasts for $2.94 a share. Revenue climbs by 13%, boosted by travel-and-entertainment spending. Millennial and Gen-Z spending rises by 18% in the U.S.
3. Oilfield services firm Schlumberger (SLB) misses slightly on revenue expectations for the third quarter, but beats adjusted EPS estimates by a penny. The company has reported nine-consecutive quarters of double-digit, year-over-year growth in its international business, and expects sequential revenue growth in the fourth quarter.
4. UBS assumes coverage on a handful of drug stocks, including Club name Eli Lilly (LLY). The bank designates Eli Lilly a buy, with a price target of $710 a share, saying it expects “meaningful upward revisions” for diabetes-and-obesity treatment Mounjaro.
5. Intuitive Surgical (ISRG) reports a mixed quarter, as the company continues to see pressure on its bariatrics business due to the rise in GLP-1 obesity drugs. This used to be the company’s largest source of procedure growth.
6. General Motors (GM) is reportedly close to reaching a tentative agreement with the United Auto Workers union that would resolve a month-long strike, which has also engulfed Club name Ford Motor (F) and Stellantis NV (STLA), according to Bloomberg.
7. Deutsche Bank upgrades Union Pacific (UNP) to a buy rating, while slightly raising its price target to $258 a share, up from $257. The firm cites improving U.S. rail volumes and increasing confidence around new CEO Jim Vena.
8. Wolfe Research upgrades Club holding Morgan Stanley (MS) to a neutral-equivalent rating from underperform, without a price target. Meanwhile, Wednesday’s post-earnings sell-off of the bank stock was an overreaction.
9. JPMorgan reiterates Club holding Amazon (AMZN) as its best idea in the internet sector on the expectation that revenue growth at cloud unit Amazon Web Services will accelerate in the second half of this year, while North American retail margins expand.
10. Goldman Sachs lowers its price target on Club name Walt Disney (DIS) to $125 a share, down from $128, while maintaining a buy rating on the stock. The firm asks: is the stock is now at the point of peak uncertainty?
(See here for a full list of the stocks at Jim Cramer’s Charitable Trust.)
As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.
THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
By most measures, Gary Black qualifies as a big supporter of electric-vehicle giant Tesla. The Chicago fund manager has had Tesla as his No. 1 or No. 2 holding since he opened his fund in 2021, and often appears on social media (and sometimesCNBC) to talk about it, usually supportively. But there’s one thing Black has had on his mind lately: That Tesla is wasting money on price cuts to keep growth rates high.
His once-lonely campaign has been picking up allies lately in a domain where Musk pays close attention — social media. An online poll run by @TroyTeslike, another active social-media Tesla fan, found half of the 8,000-plus respondents thought Tesla should start advertising, beating out growth strategies like more price cuts and adding technology to high-end Model S and Model X.
The investor pressure, or at least nudging, didn’t come out of nowhere. Last May at Tesla’s annual shareholder meeting, Musk looked surprised, if a little amused, when a shareholder challenged him on the issue about 70 minutes in, to the cheers of a crowd dominated by Tesla fanboys.
“525 bucks off of every car this year is half of Netflix’s ad budget, and 1000 bucks is the entire Netflix ad budget and I see their ads everywhere. Why not advertise these things you told us about here?” said Kevin Paffrath, who runs The Meet Kevin Pricing Power ETF in southern California. Hespecifically referred to safety features including airbag deployment technology as Tesla advantages that might appeal to consumers through advertising.
Musk expressed openness to the idea.
“There are amazing features and functionality about Teslas that people just don’t know about, although obviously a lot of people who follow the Tesla account and my account to some degree, it is preaching to the choir and the choir is already convinced,” Musk said.
Then Musk made a promise. “I think what you are saying does have some merit and I believe in taking suggestions and we’ll try a little advertising and see how it goes,” he said.
The shareholders erupted in cheers, to which Musk responded, “I wasn’t expecting that level of enthusiasm.”
If shareholders expected a major advertising push, they’d be disappointed today. In the months since, according to Wedbush analyst Dan Ives, Tesla has spent very minor amounts on online and social advertising. At the same time, the major price cuts continue as Musk’s primary strategy to drum up more interest in Teslas.
Musk has been a firm proponent of cost-cutting first. As he said at this year’s annual meeting, Tesla’s goals include bringing electric transportation to mass-market consumers, and as he said, many Model 3s can be had in the U.S. market for less than the average cost of a new passenger vehicle.
Indeed, the average price of most Teslas has fallen about 20% since August 2022, according to Cox Automotive. The figures don’t include the restoration of the $7,500 federal tax credit for Teslas under the 2022 Inflation Reduction Act.
But the most recent round of price cuts, announced over the past month, is costing Tesla an annual $2 billion a year, Black said. Overall, the price cuts over the past year have shaved revenue by much more, Ives estimated.
Black’s premise, in effect, is that Musk should reconsider how much Tesla relies on price cuts versus spending money on advertising to get the word out about features like the falling cost of EVs and safety features like over-the-air software updates. It becomes especially pressing considering that Tesla stock, while up about 140% this year, is still one-third below its 2021 peak and has trailed the S&P 500 over the last year.
“I don’t think that you get that much demand elasticity by cutting a Model Y to $48,000 from $55,000,” Black said. “Instead of a $2,000 price cut, let’s do $1,800 and try advertising more.”
CNBC reached out to Tesla multiple times. The company did not respond.
In effect, Black argues that Tesla price cuts are a de facto marketing expense, saying Tesla’s share losses among EVs by Tesla this year suggest price cuts alone aren’t working.
Indeed, Tesla’s U.S. market share among EVs has been slipping even as it cuts prices. Third-quarter deliveries were 435,059 units, up sharply from 343,830 a year earlier but below second-quarter unit sales of 466,140 and first-quarter sales of about 423,000. In a press release, Tesla blamed the third-quarter number, which missed analyst projections, on “planned downtime for factory upgrades.”
The lower prices are also showing up in Tesla’s gross margins, which dropped to 18% of sales in the second quarter from 25% in the second quarter of 2022, Ives said. That implies a $1.5 billion drop in potential gross profit, unless some of it is made up in higher sales volume, he said.
What a Tesla ad campaign might look like
It’s possible to guess at what an effective Tesla ad campaign might do, said Allen Weiss, CEO of MarketingProfs, a marketing research and training firm, who pointed to many features beyond just safety that consumers do care about.
“I would start by identifying what benefits customers are looking for, which are likely some [about performance] but others are [about] luxury and even others are symbolic, [being] a person who helps save the planet,” he said. “I would find out what these benefits are, target a segment of these buyers and put a great theme around these benefits. That way, you can have fun ideas but are connecting with the buyers on what they really care about.”
New Tesla electric vehicles fill the car lot at the Tesla retail location on Route 347 in Smithtown, New York on July 5, 2023.
Newsday Llc | Newsday | Getty Images
Tesla’s challenge is that, as it grows, it’s competing more directly with companies that are experienced marketers, Weiss said. Ford has already spent conspicuously to promote its F-150 Lightning pickup, and General Motors has run Super Bowl ads for the last three years. Weiss said Swedish EV maker Polestar also advertises, spending an estimated $20 million this year. Polestar and BMW have both touted EVs on the Super Bowl telecast, the most expensive U.S. TV buy, and industry data firm iSpot estimates that about a quarter of 2022 car ad spending was for EVs, a move Ives called a “tidal wave” that he predicts will grow.
“Other carmakers are used to focusing more on customer benefits, while Tesla is not,” Weiss said. “Go to Ford’s website and click on electric and you will immediately see words like head-turning design, impressive performance and thrill. Go to BMW’s electric vehicles page and you see ‘cutting edge performance and luxury.’ Go to Tesla’s site and you see, well, price.”
Musk himself conceded at the annual meeting that he is often confronted by people who tell him that EVs are too expensive.
“I’ve talked to lots of people who still think Teslas are, like, super-expensive,” Musk said. “I’m like, no, the [average selling price] of a Tesla is lower than the average selling price in the U.S.”
Tesla doesn’t need to spend as much as Ford or GM do on advertising, Ives said, arguing that a focused campaign could zero in on specific Tesla or EV advantages.
“There are differentiations to Tesla that people don’t know about,” he said. Advertising can also be deployed to sustain Tesla’s luxury brand image even as the average cost of its cars falls, he said. “You start to change perceptions.”
The “name of the game” at Tesla as it reaches its full scale is volume and operating margins, Ives said. Black argues that it’s worth finding out, soon, whether advertising more will help. Even Musk may be convincible, and the irony of his longstanding reluctance to advertise wasn’t lost on him at the annual meeting:
“I think it’s ironic that Twitter [X] is highly dependent on advertising and here I am ‘never use advertising’ and now have a company that’s highly dependent on it. I guess I should say advertising is awesome and everyone should do it.”
United Auto Workers members strike the General Motors Lansing Delta Assembly Plant on September 29, 2023 in Lansing, Michigan.
Bill Pugliano | Getty Images
DETROIT – A shift in strategy by the United Auto Workers union this week has some analysts wondering if the parties are — perhaps, counterintuitively — getting closer to a deal.
On Wednesday the union initiated a surprise work stoppage at Ford Motor’s Kentucky Truck Plant. The strike involves 8,700 workers and affects the most crucial plant, by far – responsible for $25 billion in revenue annually – that the union has walked out on since the strikes began Sept. 15. It’s expected to quickly have a ripple effect on other Ford plants and suppliers.
It also ushered in what UAW President Shawn Fain characterized as a “new phase” of strikes and contract negotiations with Ford, General Motors and Chrysler-parent Stellantis, giving the union the element of surprise to keep the automakers on edge during the ongoing negotiations, Fain told members in a Friday presentation.
“We’re entering a new phase of this fight and it demands a new approach,” Fain said Friday. “We’re done waiting until Fridays to escalate our strike.
“We are prepared at any time to call on more locals to stand up and walk out,” he said.
Until this week, Fain had announced all of the union’s new strikes on Fridays, during what has become a weekly livestreamed update for union members.
Some Wall Street analysts and industry experts think this week’s shift in strategy could be a sign that UAW leaders feel a deal with Ford is close, and that they’re increasing pressure as a tactic to get the deal over the finish line — and to help sell a potential tentative deal to their members.
“We continue to believe the escalation at [Ford] this week is a sign the talks may be coming to an end. KY Truck is likely Ford’s most profitable plant, and therefore the strike is the highest level of escalation, aside from a national strike,” Wells Fargo analyst Colin Langan wrote in a Friday note. “This escalation would likely be done to push for final terms.”
But the UAW’s leaders may be looking one more step ahead, to the process of selling a tentative deal with Ford to their members. The thinking is that to convince members to ratify a potential new contract, UAW President Shawn Fain and the union’s leadership will need to convince autoworkers that the union has fought as hard as possible to have their demands met. Striking Ford’s most profitable factory might be one way to do that.
Wolfe Research’s Rod Lache argued the Kentucky strike may allow UAW leadership to claim that they did all that could be done, especially if it leads to one or two more concessions from Ford.
“In another week or two, Fain should be able to credibly announce that he has forced Ford into one last capitulation (battery plants?), and that UAW members have secured the last few ounces of wage, benefits, and job protection concessions that they can get,” Lache wrote Thursday to investors.
Factory workers and UAW union members form a picket line outside the Ford Motor Co. Kentucky Truck Plant in the early morning hours on October 12, 2023 in Louisville, Kentucky.
Only about 34,000 U.S. automakers with the companies, or roughly 23% of UAW members covered by the expired contracts with the Detroit automakers, are currently on strike.
“Hitting a very high-dollar, high-profitable plant, it certainly gets Ford’s attention very quickly,” said Art Wheaton, a labor professor at the Worker Institute at Cornell University. “It also sends a huge message to Stellantis and General Motors.”
Wheaton argues the escalation in Kentucky may just be the beginning. There are plenty more plants the union could hit for each of the automakers, including the full-size pickup truck plants owned by all three and large SUV plants at GM and Stellantis.
GM avoided a strike at its most profitable SUV plant in Texas last week with a last-minute offer to include battery cell plant workers under the company’s national agreement, however details regarding how that will be done are believed to be still being negotiated.
While Fain declined to expand strikes against GM and Stellantis Friday, Wells Fargo’s Langan thinks that doesn’t necessarily mean they’re spared.
“The lack of GM & STLA strike today, even though both have not matched F’s offer, would be consistent with the UAW holding out the most profitable plants for a final push,” he wrote in a Friday note.
All of that tea-leaf reading aside, rapid escalation-turned-resolution is just one potential outcome.
Another includes the automakers holding out for the union to deplete its resources, specifically its strike and defense fund. Or, the UAW could continue rotating strikes or filing additional unfair labor practice charges against the companies. Yet another outcome could see the sides seeking mediation or legal resources.
“I think they’ve got to be getting close to some sort of an agreement, or you just have to conclude a reasonable deal is not in the making — and that this is really more a matter of a test of will than anything else,” said Marick Masters, a business professor at Wayne State University in Detroit who specializes in labor issues.
An automaker also could submit what’s known as a “last, best and final offer,” which, as it states, is typically a final proposal when bargainers have reached an impasse.
Ford may be close to that point. An executive said Thursday the automaker was “at the limit” of what it can offer UAW in terms of economic concessions.
The Detroit automakers have largely given into many of the union’s demands, but not all of them.
The companies haven’t waved the white flag on demands for a 32-hour workweek — which was always a nonstarter for the companies and which has largely fallen out of union talking points — and a 40% wage increase.
Ford was up to a record 23% wage increase in its recent contract proposal, with the others not far behind.
Then there’s the outstanding issues of benefits for retirees as well as a return to traditional pension plans and future battery plant jobs and workers.
Industry experts and sources familiar with the talks believe regardless of the outcome, the contracts will have ripple effects on the companies potentially in the way of reorganizations, cost cuts and future investments and jobs.
A former high-ranking bargainer for one of the automakers told CNBC that it’s nearly guaranteed that the companies will cut union jobs through product allocation, plant closures or other means to offset increased labor costs once the contracts are set.
“They’re going to have to pay up. The question is how much,” said the longtime bargainer, who agreed to speak on the condition of anonymity. “This ends up with fewer jobs. That’s how the automakers cut costs.”
Healthcare workers strike in front of Kaiser Permanente Los Angeles Medical Center, as more than 75,000 Kaiser Permanente healthcare workers go on strike from October 4 to 7 across the United States, in Los Angeles, California, October 4, 2023.
Aude Guerrucci | Reuters
More than 85,000 health workers reached a tentative labor agreement with Kaiser Permanente on Friday that will avoid more strikes after the Biden administration intervened in the negotiations.
President Joe Biden praised the health workers and reiterated his support for organized labor in a statement Friday.
“Health care workers and support staff kept our hospitals – and our nation– going during the dark months of the pandemic,” Biden said in a statement Friday. “They had our backs during one of our nation’s toughest times. We must continue to have theirs.”
“I always say that collective bargaining works,” Biden said. “It works for UPS drivers and dock workers, writers, and millions of American workers who exercise their right to participate in a union.”
Biden has touted himself as the most pro-union president in American history. He recently joined the picket line in Detroit to support the United Auto Workers in their strike against Ford Motor, General Motors and Stellantis.
Tens of thousands of health workers walked out of Kaiser hospitals and facilities last week to protest short staffing and demand better pay. The strike lasted three days in California, Colorado, Oregon and Washington state. The walkout was said to be the largest health-care worker strike in U.S. history.
The Coalition of Kaiser Permanente Unions had threatened additional strikes if management did not meet their demands, particularly over short staffing and the outsourcing of jobs.
Julie Su, acting labor secretary, arrives to testify during the House Education and the Workforce Committee hearing titled “Examining the Policies and Priorities of the Department of Labor,” in Rayburn Building on Wednesday, June 7, 2023.
Tom Williams | CQ-Roll Call, Inc. | Getty Images
The union coalition and Kaiser executives met for bargaining sessions this week. The sides reached a tentative labor contract to avoid further strikes after the intervention of acting Labor Secretary Julie Su.
The agreement includes a 21% pay hike over four years, a minimum wage of $25 in California and $23 in other states, protections against outsourcing, and numerous investments to address short staffing.
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Su flew to California on Thursday evening to help facilitate the deal, according to the union coalition. Sarah Levesque, secretary-treasurer of OPEIU Local 2, said Su was instrumental in brokering the deal.
“We’re incredibly grateful to acting U.S. Labor Secretary Julie Su and the Biden administration for supporting workers’ right to collective bargaining,” Levesque said.
Biden also praised Su’s role, “She continues to play an integral role helping my administration and workers across this country build an economy that works for everyone,” the president said.
In what was described as an unannounced decision, the United Auto Workers union has called a strike at Ford Motor Co.’s F, +0.41%
large Kentucky Truck Plant in Louisville, the union said Wednesday.
The union, in a statement, said that 8,700 union members had walked off the job at 6:30 p.m. Eastern at the plant, which Ford described as its biggest. The union said that the move marked a “new phase” in its ongoing strike, in which select workers have been called on at different times to walk out.
In a statement, UAW President Shawn Fain said Ford “has not gotten the message.”
“It’s time for a fair contract at Ford and the rest of the Big Three,” Fain said. “If they can’t understand that after four weeks, the 8,700 workers shutting down this extremely profitable plant will help them understand it.”
Ford, in a statement, called the decision “grossly irresponsible” and said it had made an “outstanding offer” in the negotiations, which involve the union and the Big Three auto makers.
Ford said the vehicles made at the factory — the F-Series Super Duty, the Ford Expedition and the Lincoln Navigator – bring in $25 billion a year in sales.
The automaker said the UAW’s decision “carries serious consequences for our workforce, suppliers, dealers and commercial customers.”
Fain will host an event on Facebook on Friday to give updates on bargaining. Shares of Ford fell nearly 2% after hours.
