What happened
The auto industry strike that went into effect Friday -- the latest work stoppage in what many are calling the "hot labor summer" of 2023 -- resulted in a lot of action in auto stocks. Many companies in the industry saw trading volumes that were well above average, and the directions of the stocks' prices indicated how investors believe they'll be impacted by the strike.
For example, specialty electric vehicle (EV) makers and developers Fisker(NYSE: FSR) and TuSimple Holdings (NASDAQ: TSP) both did well Friday. The former's share price closed the day 5% higher, and the latter's rose by nearly 11%. Conversely, AutoNation(NYSE: AN) fell by more than 4%, which was hardly surprising given the auto dealer's reliance on inventory from the strike's target companies.
So what
Fisker and its EV (and other alt-fuel) peers will benefit first and foremost by simply not being among the target companies. These are namely the Big Three U.S. manufacturers: General Motors, Ford, and Stellantis. In contrast to those giants, there are no work stoppages happening at the facilities of these next-generation manufacturers and developers.
The United Auto Workers (UAW), the union that is on strike, is employing an interesting strategy. Its protests currently cover only three factories, one apiece for each of the Big Three, although those locations are where some of the automakers' more profitable models are produced. UAW President Shawn Fain has said the union could stage walkouts at other factories with little notice if contract negotiations between it and the carmakers drag on.
So far, investors in the auto industry incumbents don't seem to be panicking. In fact, several of their stocks actually inched up on Friday. But these moves were modest at best. If investors believe that this strike will be limited in scope and duration, their confidence in that thesis doesn't appear particularly strong.
The market is surely anticipating at least some disruption for AutoNation. This is understandable, given that the new vehicle inventory of the company's domestic segment -- which is responsible for nearly 30% of its revenue these days -- consists entirely of Big Three models. Although the company has said it bolstered its inventory in anticipation of the strike, its stock of new vehicles could become badly depleted if these contract negotiations go on for too long without an agreement.
Now what
Given the UAW's numbers and power, it's conceivable that this strike won't drag out as long as, say, the writers and actors strikes that have brought Hollywood to a near standstill. Yet auto industry investors are already hedging their bets in anticipation of a struggle, and we can expect that realignment to continue if the union and the target companies don't make meaningful progress toward contracts in the near future.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends General Motors and Stellantis and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
