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Union President Shawn Fain is scheduled to release targets for third round of strikes

The United Auto Workers union is poised to call more walkouts on Friday, as the strike against Detroit’s three automakers enters its third week.

UAW President Shawn Fain is expected to disclose new site targets during a livestream to members at 10 a.m. ET. General Motors GM 2.50%increase; green up pointing triangle, Ford Motor F 1.37%increase; green up pointing triangle and Chrysler-parent Stellantis STLA 2.45%increase; green up pointing triangle could be hit with more walkouts, which would start at noon, unless there is significant headway made at the bargaining table, a union official said earlier this week.

Fresh work stoppages would add to the more than 18,000 factory workers across the companies who are striking at three assembly plants and dozens of parts-distribution facilities. The current total strike count represents about 12% of the union’s 146,000 workers at the Detroit companies.

Talks between the union and the three companies have continued this week.

The union has been pressing for wage increases of up to 40% over four years, along with the return of cost-of-living adjustments and more paid time off. The companies have countered with around 20% wage increases along with other benefits, collectively calling the offers among the most competitive they have made in history.

Union officials have said the companies can afford their demands, citing a run of strong profits in recent years. The companies have said much of that income has been spent on developing electric vehicles.

The union is striking all three companies at once for the first time in its 88-year history. The expanding nature of the walkouts also is a departure, aimed at keeping the companies off balance and giving the union flexibility to add pressure through further work stoppages if talks don’t progress.

Last week, the UAW escalated its action against GM and Stellantis by striking their parts depots, but bypassed Ford, citing movement in the negotiations.

This week, though, tensions between Ford and the union flared after the company said it was pausing construction at a battery plant in Michigan, citing concerns about its ability to remain competitive. Fain criticized the move as a threat to cut jobs.

Still, analysts expect Ford to be the first to reach a deal, given Fain’s recent characterization that the company is further along than the other two in moving toward the union’s demands. Any tentative agreement would then go to UAW members for a ratification vote.

Workers have been on strike at three factories: Stellantis’s Jeep plant in Toledo, Ohio; a Ford factory in suburban Detroit, where it produces the Bronco SUV and Ranger pickup truck; and a GM plant in Missouri that makes vans and midsize pickups.

In addition to the factory walkouts, workers have struck at 38 parts-distribution centers across 20 states, facilities that supply components to dealerships.

The automakers and their suppliers have laid off workers because of knock-on effects. For example, a GM Kansas factory was idled because of a disruption in parts at the company’s striking factory.

As of Thursday, there were roughly 6,000 employees either off the job or at risk of being laid off because of ripple effects from the striking facilities, according to disclosures from the companies.

Through Thursday, the estimated lost output stemming from the strike totaled around 36,000 vehicles, according to research firm GlobalData. The three companies combined produced roughly 600,000 vehicles a month on average this year through August.

The crimp in production likely won’t be felt by car shoppers for several weeks, because the companies had supplies of those vehicles at dealerships or in transit to stores. The bigger concern among dealers is a looming parts shortage from the distribution centers being down.

In Detroit this week, President Biden visited striking UAW workers at a GM distribution center, the first time a U.S. president has walked a picket line, the White House and historians said.

The visit came a day before former President Donald Trump addressed a crowd in suburban Detroit. Trump criticized the Biden administration’s push to promote electric vehicles, saying it would cost auto workers their jobs.

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UK water company Severn Trent to raise £1bn to tackle pollution

Customers’ bills to rise almost 37% by end of decade under new five-year spending plan

UK water company Severn Trent will raise £1bn through a new share issue to support plans for infrastructure investment to reduce water leakage and cut sewage outflows.

The FTSE 100-listed utility, which provides water and sewage services to 8mn people in areas including the Midlands and Wales, said the share issue would raise £500mn from the Qatar Investment Authority, which already has a 4.59 per cent stake in the company.

A further £500mn will be raised from institutional investors, and up to £7mn from retail investors. An unspecified number of company directors will buy shares worth £275,000 each.

The share issue comes as the industry seeks to combat a reputational and financial crisis that has led to calls for renationalisation of the UK’s privatised water industry.

Severn Trent’s stock rose more than 4 per cent to £23.57 a share on Friday morning. Shares were down 13 per cent this year before the update.

Severn plans to raise the average customer’s bill by almost 37 per cent in the region by the end of the decade to £518, as part of a new five-year spending plan. Water companies are allowed to adjust bills for inflation every year so in real terms the sums would be higher.

Severn will submit its draft business plan to the water industry regulator by Monday, which will decide whether to sign off on water companies’ steep bill increases to pay for investment in infrastructure including reservoirs, water transfer pipes and sewage treatment plants. 

Severn plans to invest £12.9bn over five years from April 2025, almost double the £6.9bn agreed for the regulatory period between 2020 and 2025, with £5bn earmarked for cutting leakage and sewage spills.

The company is targeting a 30 per cent reduction in both spills and storm overflows by 2030. It received a £1.5mn fine for sewage discharges in 2021.

Ofwat is not expected to approve companies’ plans until the end of next year, and will have to balance the need for investment with the impact on customers struggling with a cost of living crisis.

The UK’s privatised water companies have been criticised for amassing £60bn of debt since they were sold in 1989, while paying out more than £72bn in dividends. They have also attracted scrutiny for awarding senior executives generous pay packages, while failing to invest sufficiently in infrastructure, generating calls for renationalisation from campaign groups.

Earlier this year Liv Garfield, chief executive of Severn Trent, emailed other industry chiefs to call for a new task force that would work with the Labour party and head off any future threat of nationalisation.

Garfield is the water sector’s highest-paid executive, receiving a total pay package of £3.2mn in the year to 31 March 2023, down from £3.9mn in the prior period, but still 73 times average employee earnings at the company.

Like other water companies Severn Trent has suffered the impact of rising inflation on energy, construction, labour and financing costs. Its net debt rose from £6.5bn to £7.1bn this year. The company paid a £261.3mn dividend in the year to March 2023.

Severn’s share issuance will help to keep gearing — a measure of indebtedness — at around 65 per cent over the next regulatory period, satisfying Ofwat’s guidance to keep it below 70 per cent.

Equity injections have been rare in the 34 years since the regional water monopolies in England and Wales were privatised. But in the past three years Anglian Water, Southern Water, Thames Water and Yorkshire Water have all received cash from their shareholders as their finances came under pressure. Severn Trent also raised £250mn in equity in 2021.

The company’s share issue will be led by Bank of America Securities and Morgan Stanley, with Citigroup as joint bookrunner and Rothschild as financial adviser.

Takeover offers for auto dealership are hard to compare

There is widespread consensus that UK stocks are, for the most part, extraordinarily cheap. Yet, despite the collective hand-wringing, public markets have not moved to correct this anomaly. That leaves many a company idling by the roadside. 

One strategy for stalled British stocks is to cast around for a takeover offer. This process gives shareholders the option to either sell out (preferably above current prices) or decide there is value in the old banger after all. 

Better still, once a company does attract a bidder, other would-be acquirers are forced to step on the gas. For an example of a veritable bid pile-up, look no further than Pendragon. The UK car retailer has in the past week received offers from three US peers, one of which has teamed up with its own major shareholder, Sweden’s Hedin.  

Receiving a clutch of bids can put shareholders in a tricky position — especially when it is not immediately clear which one offers superior value or will actually materialise. Company boards are on hand to proffer recommendations. But the canny private investor will also want to make up their own mind about which offer — if any — merits snapping up. 

The first thing investors should consider is which bid is higher. In the case of Pendragon, they are not directly comparable.

The first, initially recommended by the board, was from $8bn market value Lithia Motors. It has offered to buy Pendragon’s UK cars business for £250mn It would also inject £30mn of capital into a division that sells software for car dealerships, securing a 16.7 per cent stake. This software unit would continue trading under Pendragon’s listing.

Shareholders can also choose from another two non-binding bids, by Sweden’s Hedin and the US’s AutoNation, which value the whole of Pendragon at £447mn. 

A quick look under the bonnet suggests Lithia’s is the less attractive offer. Pendragon’s investors would get £250mn for the motor business and be left with 83 per cent of the software business, valued at £150mn. That is a total of £400mn, some £47mn less than alternative bids.

But investors should also ask whether any of the bidders can deliver on their promises. Hedin, which owns 28 per cent of Pendragon, disappointed shareholders last year when its bid for the company failed. This time around, its interest is subject to a number of preconditions. And Hedin’s own bid may cause AutoNation’s deal to misfire. After all, even if AutoNation wins, it risks getting stuck with a large, recalcitrant shareholder.

The two companies only have a week or so to finalise their offers and seek a board recommendation. Lithia, which does not want its own bid shopped around the market, has made it conditional on securing shareholder approval by October 6.

Private investors will hope Pendragon gets an auction under way. Lithia’s bid has been useful to get the ball rolling. But, by valuing the motor business at only 3.5 times this year’s ebitda, it has a whiff of the lemon about it.

Car dealerships such as Pendragon hope to navigate the disruption caused by electric vehicles — though the likes of Tesla tend to skip the middlemen and take their sleek offerings directly to consumers. Other areas of the economy — including car manufacturers — are going to have to adapt faster than they thought. There are signs that electric vehicles have already reached a tipping point.

Europe’s demand for EVs is such that politicians worry about a flood of imports from China. An EU trade probe on production subsidies has begun. About 20 per cent of all EVs sold in Europe are produced in China.

About 26mn EVs have been sold worldwide to date, according to the International Energy Agency. These include plug-in hybrids, which have an internal combustion engine alongside a battery. That is a fraction of the total car stock of 1.3bn. But sales are revving up. They are set to increase from about 10mn in 2022 to about 14mn in 2023 — 18 per cent of all cars sold.

Drivers making the switch can expect to save money, though the exact figures depend on local electricity prices. Greater efficiency makes EVs cheaper to run. Assume, for example, that UK drivers charge their EVs at home for 32p per kWh and that cars travel 5km on each kWh. That equates to 6.4p per km. Diesel cars, meanwhile, might be able to do 15km on one litre, which at present costs 152p. This means they are paying 10p per km.

In terms of initial outlay, EVs are becoming more affordable. The cheapest Tesla Model Y ($46,900) now costs less than the average amount paid for a new car in the US. Chinese carmakers known for their cheaper models are setting their sights on increased exports to the US and Europe.

Slow charging times and the need for comprehensive charging infrastructure remain barriers. But forecasts for EV sales suggest rapid growth over the next few years. Bernstein analyst Oswald Clint superimposed EV growth trajectory on that achieved by the internal combustion engine at the start of the century and found that the curves matched.

The implication is clear: within the next decade, there could be 800mn battery, plug-in and hybrid electric vehicles on the roads.

Americans spent more in August on expensive gasoline, but the Fed could be pleased with cooler underlying inflation

Higher gasoline prices likely boosted August consumer spending and kept inflation elevated, while underlying price pressures cooled, analysts say.

• Economists surveyed by The Wall Street Journal estimate consumer spending rose 0.4% last month, down from a 0.8% rise a month earlier. That still-strong August increase was fueled by solid growth in jobs and wages, but also rising pump prices. Keeping up that pace this fall could be a challenge as Americans face the resumption of student-loan repayments, the depletion of pandemic savings and high interest rates.
• Other broad measures of inflation rose in August, largely because of energy costs, but underlying prices appear more tame. When excluding volatile food and energy costs, economists estimate that the core personal-consumption expenditures price index rose 3.9% in August from a year earlier, slowing from a 4.2% annual increase in July.
• Underlying inflation has cooled as the Federal Reserve aggressively raised interest rates over the past 18 months. Central bank officials say they need to see this trend continue before determining whether to raise rates again.
• The Commerce Department will release the August personal income and outlays report at 8:30 a.m. Eastern time Friday.

The Fed held its benchmark interest rate steady at a 22-year high last week, and most officials penciled in one more rate increase for this year. Fed Chair Jerome Powell said officials want to see “convincing evidence” that they have raised rates enough to sustainably lower inflation to their 2% goal.

“We’re seeing progress, and we welcome that, but we need to see more progress,” he said. “We want to see that it’s more than just three months.”

Friday’s Commerce report will include the Fed’s preferred inflation gauge, the PCE price index. While the separate consumer-price index showed firmer core prices in August, analysts expect a milder increase in the core PCE index. Several areas of strength in the CPI, such as airfares, are calculated differently in the PCE price index and were lower last month.

Fed officials’ projections indicate they expect core inflation to cool further next year. But even if that occurs, the Fed risks holding interest rates too high for too long, said Simona Mocuta, chief economist at State Street Global Advisors. She worried that would lower the Fed’s chances of achieving a so-called soft landing—beating inflation without causing a recession.

“I do wonder whether the soft landing can truly survive the Fed,” she said.

Consumers remained resilient this summer

Consumer spending, the economy’s main engine, has been strong much of this year. A solid labor market and slower price increases have boosted Americans’ inflation-adjusted incomes, propelling purchases.

Shoppers snapped up vehicles earlier this year as they flowed back onto dealership lots amid easing supply-chain disruptions. They also spent more on experiences, flocking to “Barbie” and “Oppenheimer” this summer and splurging on tickets to Taylor Swift and Beyoncé concerts.

The spending spree bolstered economic growth. Many forecasters think the economy is expanding faster this quarter than earlier this year.

Some of the factors that helped consumer spending in the past two years are fading and signs of stress are emerging: Many Americans are dipping into savings. The personal saving rate, a measure of how much money people have left each month after outlays and taxes, has trended down.

“The excess savings is drying up and the credit has gotten a lot more expensive, so I think that diminishes the resilience angle,” said Tim Quinlan, senior economist at Wells Fargo. “Our staying power is going to be tested.”

New challenges could further dent spending, including the resumption of student-loan repayments and higher gas prices, which cut into Americans’ budgets for dining out and travel. Strikes and a potential government shutdown could at least temporarily curtail the spending power of some workers.

The consumer’s resilience will depend in large part on whether the labor market falters. While unemployment is still historically low, it has edged higher recently. If companies begin to widely lay off workers, incomes will take a hit.

“That’s where I get antsy about the capacity for consumers to keep going,” Quinlan said.