After seven weeks on strike the UAW (Union of Auto Workers) and the major US auto makers seem to have finally agreed workable deals.

Fiat/Chrysler owner Stellantis NV (STLAM:BIT) and Ford Motor Company (F:NYSE) announced deals over the weekend while the last standout General Motors (GM:NYSE) followed suit on 30 October.

The General Motors agreement is still tentative but is believed to follow the same structure as those agreed by Ford and Stellantis.

It involves an immediate 11% pay hike in the top hourly wage and a 14% increase over the next four years as well as a cost-of-living adjustments to protect workers from rising prices.

While lower than initial demands of 40%-plus hikes investors are trying to figure out what the pay rises might mean for interest rate policy given the Federal Reserve’s laser like focus on wage inflation.

A complicating factor for Fed officials trying to gauge the underlying strength of the economy is that the UAW strikes as well as those in Hollywood would have had a temporary slowing effect.

The US has been hit by a substantial increase in strikes this year which has resulted in 7.4 million working days lost compared with just 636 days in 2022 according to the Labour Department.

The Fed has repeatedly said it believes wage inflation remains well anchored and therefore not a concern over the longer term.

US auto production accounts for 2.9% of GDP and the three automakers employ around 146,000 workers. Outside of the auto industry union membership has halved over the last 40 years and sank to a record low of 10% of the total workforce in 2022 according to the Labour Department.

While union membership is relatively small in the private sector around a third of public sector workers are organised. Some argue the UAW’s success may have second round effects.

Professor John Logan at San Francisco state university said it may spur non-union shops to push for unionisation, not least workers at Tesla (TLSA:NASDAQ).

Competitors such as Nissan Motor Company (7201:TYO) may feel obliged to increase wages to retain workers, especially amid a tight labour market.

The AUW has made it a clear objective to increase union membership.

‘When we return to the bargaining table in 2028, (when the current contract expires) it won’t just be with the Big Three, but with the Big Five or Big Six,’ wrote the AUW. 

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