A former Ford Motor Company F CEO is speaking out on the rising costs of vehicles, weakened demand and how a union strike could impact automotive companies moving forward.
What Happened: Leading electric vehicle company Tesla Inc TSLA recently announced price cuts to its popular Tesla Model X and Tesla Model S in the U.S.
“They’re ramping up production and obviously have a demand issue, so are reducing prices in the U.S.” former Ford CEO Mark Fields said on CNBC’s “Closing Bell Overtime” Friday.
Fields added that one reason for demand issues and the price cuts could be the affordability of new vehicles.
The former Ford CEO said that a consumer has to “make over $100,000 to afford a new car.” As a result, the price of vehicles is starting to come down, which is leading to an inventory correction.
“Vehicles are getting older, they need to be replaced.”
Fields served as the CEO of Ford from 2014 to 2017 and has frequently expressed optimism about Tesla's leadership in the electric vehicle market.
Related Link: Ford Q2 Earnings Highlights: Revenue Beat, EPS Beat, EV Revenue Up 39% Year-Over-Year, Production Update And More
What’s Next: Fields also shared thoughts on the ongoing contract negotiations between automakers and the United Auto Workers, commonly known as the UAW.
The former Ford CEO said labor represents around 10% of the cost of vehicles, which makes the next union contract for large automakers “pretty pivotal.”
Fields said the average UAW worker makes $65 per hour, the average non-union autoworker makes $55 an hour and Tesla workers make $45 per hour.
The UAW is asking for a 40% increase in wages over the life of the contract along with added benefits.
“You’re looking at widening that disparity significantly,” Fields said.
Fields said the automakers can't absorb the demanded 40% pay hike. However, he suggested that an increase of 20% or less could be manageable, particularly for companies that specialize in selling high-margin pickups and SUVs.
Increased wages could be a setback for legacy automakers looking to take on Tesla in the electric vehicle market.
Fields said other than Tesla, no one is making money on electric vehicles right now and as the ramp-up continues for legacy automakers, they have to work on an acceptable margin.
“For a period of time there’s going to be a restricting of their margins, and that’s why every penny counts,” he added.
Read Next: Here's How Many Vehicles Tesla Has Delivered And Produced In Each Quarter Since 2019
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