After months of mutually unacceptable negotiations, UAW launched a strike against GM (NYSE:GM). Most auto strikes are resolved in a few days, but this one shows no signs of stopping.

In this week's episode of Industry Focus: Energy, host Nick Sciple talks with Motley Fool senior auto specialist John Rosevear about what this means for GM, the strikers, and the auto industry as a whole. Find out what'll happen if this ends in the next few days, and what happens if it drags on; why it's looking like it'll drag on; what both sides want from these negotiations; and what investors should watch out for in the next few quarters.

Plus, stay tuned for some other updates, including the non-merger between Renault and Fiat Chrysler Automobiles, and an exciting new batch of European EVs.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on Sept. 19, 2019.

Nick Sciple: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today is Thursday, Sept. 19, and we're discussing the ongoing UAW strike against General Motors. I'm your host Nick Sciple, and today I'm joined by Motley Fool senior auto analyst John Rosevear via Skype. How's it going, John?

John Rosevear: It's going well, Nick! How are you?

Sciple: I am doing great! It's been a while since we've had you on the show. There's been a lot of news in the auto industry since then. The biggest news today, I think, is these ongoing UAW strikes against General Motors. At midnight on Monday, the UAW went on strike, sending 46,000 workers to picket lines at GM properties across the country. This is the first nationwide strike by the UAW since 2007. With this being a nationwide strike, how significant is that for the auto industry?

Rosevear: It's a big deal. The way this works is, the UAW does these contracts that last four years. Then contracts come up for renewal, and it's often a lot of tension in the Detroit area, and so forth. What the UAW does is pick one of the three automakers -- GM, Ford, Fiat Chrysler -- to try and strike a deal with, and then they use that deal as the pattern agreement, that's the term they use, with the other two to try and fill things in. They selected GM as their target for creating this pattern agreement. GM didn't play along, basically. GM came in late with their first set of proposals. The UAW said, "Nah, you guys aren't close. We're walking out when the contract expires," which I guess was Saturday night.

It is a big deal. In recent years, UAW strikes have tended to be quick. The one in 2007 was over in something like 40 hours. It was less than two days. When they've done what they called bottleneck strikes, which is where they strike at one factory that's doing critical parts for others to try and throw a wrench in the works, those tend to get resolved very quickly, in a matter of hours for the most part. It's been a long time, like the 1970s, since there's been a strike that went on this long against an automaker, a nationwide strike. So, yeah, it's a big deal. They've got grievances.

Sciple: It's one of those things where you can see some valid arguments on both sides. The UAW took some concessions in 2007 when the business had to be bailed out. Took some pay cuts, those sorts of things. Over this past economic cycle, GM's profits really have surged up. However, GM can point to investments they need to make in EVs and autonomous, and the fact that three out of the top four factories when it comes to underutilization are GM factories. Both sides have had legitimate arguments here.

Let's dive a little bit into some of the actual terms that the union is pushing for. What are the sticking points here? John, can you outline that for us a little bit?

Rosevear: There are a bunch of things. One of the key bones of contention is temp workers. About 7% of GM's U.S. factory jobs are filled by temporary workers. They make lower wages than the UAW folks, something like $15 an hour. GM would like to use a greater percentage of temps because it increases their flexibility. They're looking at the economy maybe slipping, changes to product line mix that are going to get drastic over the next several years as they move into electric vehicles in a greater way, and so forth. The UAW says, on the other hand, "Wait a minute! We want to reduce the percentage of temps you're using. And, for the temps you've got, we want to create a path so they can become full-time employees." This is the classic kind of thing that unions get upset about, right? [laughs] And they're really cranky about this.

There are some other points, too. In 2015, the last contract, they did away with this highly controversial two-tier system, where new hires could never make as much as the established people. What they did was, they said new hires would get this graduated series of raises, and after eight years, they'd be at the top scale pay levels. GM says, "That's fine. Let's go with that for another four years." The UAW says, "Let's make it a four-year tier thing instead of an eight-year tier thing so we can get these guys up to full speed faster." I'm saying "guys," I mean men and women. There are plenty of women here.

Wages: GM's offer that they came in with before the strike offered a 2% raise every other year, and 2% lump sum payments in the years in between. Those are smaller increases than they've had over the last four years. The UAW is like, "Wait a minute, we want the same raises we got last time, or better yet, more."

Healthcare was a key thing as well. The workers currently pay about 4% of their healthcare costs. That is very low. GM's initial proposal came in and said, "We want to raise that to 15% because this is a huge expense for us." The UAW really balked at that one, so GM backed off that demand. It's worth noting that for family healthcare coverage, the average U.S. worker pays about 29%. That's according to a study from late last year by the Kaiser Family Foundation. These are both low numbers. But the UAW wants the deal it has, they want to maintain the status quo.

The other thing, of course, is closed factories. GM last fall said, "We're shutting down a bunch of U.S. factories; we're laying off and cutting a whole bunch of jobs because we're transforming the company to electric vehicles. There's a lot of uncertainty. We're spending a ton of money on R&D [research and development] right now, etc., etc." Some of these factories have become bones of contention. One in particular, there's a big facility in Lordstown, Ohio, that made the Chevrolet Cruze compact. GM also makes a version of the Cruze at a factory in Mexico. That line remains open, but they're closing Lordstown. Of course, the UAW says: "You're sending jobs to Mexico here. What's going on? We want a new product for the Lordstown factory," which employed several thousand people. GM's response is, "Well, we could build a battery factory near there for our electric cars," but that's employing hundreds of people rather than thousands of people.

There's another factory, Detroit-Hamtramck Assembly, which is one of GM's most flexible plants. They were going to shut that down. That's where they built things like the Chevrolet Volt, which is in the process of being discontinued. GM said, "Hey, we could put new electric pickup trucks that we've got in the works at that factory. That might work out."

GM has offered to invest over $7 billion in eight different U.S. factories for new products and so forth. It's unclear exactly what the UAW is pushing against that. But we know that Lordstown in particular is a big sticking point for them. It's been a rallying point for the union on strike. So, that's a big deal. That's one where President Trump has come in and said, "Hey, reopen Lordstown." I think GM would like to shut it down and sell it. In fact, it's made some small moves in that direction. It's going to be interesting to see what happens there.

Those are the key issues right now. I would say, if we're going to call out a couple, the temp workers is a big deal, and the fate of these factories is a big deal.

Sciple: Certainly. As I mentioned earlier, if you're looking backward from here, the union's arguments look very strong. The company has had some strong profits over the past several years. But, GM's management in this situation is looking forward into a slowing economic cycle, those investments they have to make into the future, as well as these factories that are underutilized and have significant carrying costs that they'll need to maintain if they don't find something to build there.

Rosevear: Yeah. The UAW's position is, "We took a huge hit in 2011 to help save the company. We got an OK deal in 2015. But we've still got some bones of contention. Meanwhile, you're cutting jobs here in the United States. We've got some issues. We want a little bigger piece of the pie here and some assurances around these U.S. factories." Meanwhile, Mary Barra and company, GM, is saying, "Look, we're in the process of transforming the company here. We've got to move to an electric self-driving future. That's a wrenching change for the whole company, and everybody's taking hits here."

Sciple: Right. As you paint this picture with both sides having real stakes to how this plays out, do we have any indication of how long this dispute might play out before the sides can reach an agreement?

Rosevear: No. [laughs] Like I've said, these things have tended to be worked out in a day or two in recent years. The fact that it's gone on this long suggests that there are some really intractable issues. We don't get much information from these talks; they're secret, although the UAW folks do sometimes give readouts. By tradition, the automakers never say anything about it, they let the UAW do the talking. A UAW official said after yesterday's round that they weren't close. That's the only indicator we have, really.

We know they've also been working with Ford and FCA waiting for the pattern agreement from GM. They said they've got over half of their new contract basically agreed upon -- tentative agreements, they call it -- before the workers vote with Ford, and that they're making progress with FCA. But they're all waiting to get the pattern agreement, which means they've got to cut the deal with GM before they can move forward with the other two. In the meantime, there's no real question of striking Ford or FCA at this moment that I have heard. They're focused on GM, and pushing this pretty hard.

Sciple: Right. As these sides dig in their trenches, what position are these union workers put in? What kind of salary are they receiving? What are their benefits? And how long do you think they can hold out? I've noted that GM has said they're going to pay coverage until the end of September, but then they'll go onto COBRA supported by the UAW.

Rosevear: The UAW has a strike fund. They have money for this. And they've been beefing it up over the last couple of years. The workers get strike pay, which is $250 a week, which doesn't sound much. The basic idea is, you can buy groceries and so forth. It's just enough to keep the lights on, as well as, yeah, they're going to pick up the COBRA costs. I'm not sure when that happens exactly. It may be the end of the month. GM may have already shut them off. I'm not sure. But, that's taken care of for the time being.

At the same time, it's a hardship to be on strike. If you're bringing in a couple of thousand dollars a week or more, and you're down to $250, that'll put food on the table but not much else. At some point, other bills become due, and so on and so forth. A strike is something that a household that's in reasonably decent financial shape can probably do fine for a week or two. If it goes on beyond that, it starts to get tough for just about everybody.

Meanwhile, on the other side, GM's probably losing something like $45 million to $50 million a day in terms of production. There's some pressure there, too.

Sciple: Let's talk about GM a little bit there. They've built up some inventories, maybe in preparation for something like this happening. When you look at GM from an investment point of view, what should investors be mindful of, both in the short term and the long term, if this strike does continue on for months or weeks?

Rosevear: Well, in the shorter term, this is what I said the other day -- GM has plenty of inventory at their dealers, or did as of a couple of weeks ago, and can just ride this out. GM books revenue when the vehicles arrive at dealers. Their revenue will take a dip for the third quarter with every day this goes on, to the tune of probably something in the neighborhood of $40 million to 50 million, as I said. Maybe more than that. If the strike's over tomorrow, they can make all that up by the end of the year. It's no big deal. And the dealers will have ample inventory.

If it goes on past this weekend, at that point, suppliers start to furlough workers. GM's plants in Canada and Mexico that depend on parts from the United States start to shut down and furlough their workers for lack of parts. It becomes more systemic. Then you start to see effects in places like southeast Michigan, where communities around these workers -- the coffee shop across the street from the factory has to cut down because nobody's there, these kinds of things -- times many, of course. It starts to become quite big. And as that happens, the pressure to cut a deal and compromise on both sides will get to be quite immense.

Sciple: Yeah. Listeners shouldn't underestimate the size and scope of the supplier network in the automotive industry, and how many trickle-down effects there are outside of just core GM, and those sorts of things.

Rosevear: To your point, for GM shareholders -- and by the way, I am a GM shareholder -- if they resolve this tomorrow, who cares? It's all made up by the end of the year. As long as the workers are reasonably happy, and GM doesn't have to give away the farm, it's fine. I say "who cares" from the perspective of GM's bottom line, not from the perspectives of the human cost here.

If it goes on for another...I would say, even into next week, it starts to get complicated, it starts to get hard to see what the costs will be once it's all over. Of course, GM can ride this out for quite a while. But as we get past seven days, eight days, nine days, it starts to get a lot uglier as these accelerating network effects start to unfold.

Sciple: Yeah. This is a story we're going to continue to follow. Obviously, a lot of question marks here when you look at these negotiations, almost like predicting what's going to happen in Congress or something like that. Something's probably going to get done sooner or later, but we really have no idea until we see that final deal and everyone comes to the table. Obviously, we're going to continue following that.

I wanted to circle back, we've got a couple of minutes here before the end of the show, for a couple of stories that we've talked about in the past. A couple of months back, John, we talked about potential merger offers between Fiat Chrysler and Renault. Any status update on those negotiations?

Rosevear: The status update is that Renault's CEO said, I think it was last week, that there's nothing going on. The talks are dead for the moment. The gist of his remarks were, "That is a discussion we had a few months ago. There's no discussion happening right now."

Sciple: That's another auto story, as you mentioned, that has politics involved, and governments, and all those sorts of things. Just explains how complicated this industry is.

The other major story over here the past several weeks has been EV rollouts by major European automakers. We had the Frankfurt Auto Show, which showed off new EVs from Volkswagen, Mercedes, and Honda. And the big news was, Porsche had its worldwide reveal for the Taycan EV sports car. Any quick thoughts on these big EV reveals?

Rosevear: Acutely, this is about tightening emissions regulations, particularly in Europe, also in China. More broadly, this is the beginning of a seismic shift, especially for the Volkswagen Group, which includes Porsche, but also Mercedes, which is making noises about, "Maybe we're not going to spend much more money developing internal combustion engines anymore." Volkswagen wants to be selling three million EVs a year by 2025, or something like that. They've made a huge investment. They've committed more money over the next several years. They're going in all the way on this.

The vehicle they showed, which they call the ID.3, to understand how VW thinks about it, the "3" means it's the third phase of Volkswagen's history. The first was the Beetle, and the second was the Golf, the car Americans knew as the Rabbit back in the 1970s. So, it's like: "We started out with the Beetle, then there were many Beetle derivatives. Then we did the Golf, and there were many Golf derivatives, and other cars, and so on and so forth. Now, the ID.3." So, for them, this is a landmark. This is a big deal.

The ID.3 is a pleasant-looking hatchback with impressive specs. There are no plans right now to launch it in the United States. We're going to get a crossover built on the same architecture instead in about a year. And then, that cool surfer electric Microbus comes a couple of years after that.

Sciple: Yeah. Obviously very exciting. As we mentioned, these UAW negotiations are hitting at a time where the auto industry is pivoting. As you mentioned, that third generation of Volkswagen is an example of that, as we move to EVs. A lot of moving parts in this industry. A lot of the stuff to talk about. We'll have you on soon again, I'm sure, John, to talk about it. Thanks for coming on!

Rosevear: Thank you, Nick!

Sciple: As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for his work behind the glass! For John Rosevear, I'm Nick Sciple. Thanks for listening and Fool on!