Evelyn Reynolds

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    Can Ghana’s Debt Trap of Crisis and Bailouts Be Stopped?

    Emmanuel Cherry, the chief executive of an association of Ghanaian construction companies, sat in a cafe at the edge of Accra Children’s Park, near the derelict Ferris wheel and kiddie train, as he tallied up how much money government entities owe thousands of contractors.Before interest, he said, the back payments add up to 15 billion cedis, roughly $1.3 billion. “Most of the contractors are home,” Mr. Cherry said. Their workers have been laid off.Like many others in this West African country, the contractors have to wait in line for their money. Teacher trainees complain they are owed two months of back pay. Independent power producers that have warned of major blackouts are owed $1.58 billion.The government is essentially bankrupt. After defaulting on billions of dollars owed to foreign lenders in December, the administration of President Nana Akufo-Addo had no choice but to agree to a $3 billion loan from the lender of last resort, the International Monetary Fund.It was the 17th time Ghana has been compelled to turn to the fund since it gained independence in 1957.This latest crisis was partly prompted by the havoc of the coronavirus pandemic, Russia’s invasion of Ukraine, and higher food and fuel prices. But the tortuous cycle of crisis and bailout has plagued dozens of poor and middle-income countries throughout Africa, Latin America and Asia for decades.Joshua Teye, a teacher in Suhum, Ghana. The government’s fiscal crisis has cut investment in schools dangerously short.Francis Kokoroko for The New York TimesThese pitiless loops will be discussed at the latest United Nations General Assembly, which begins on Tuesday. The debt load for developing countries — now estimated to top $200 billion — threatens to upend economies and unravel painstaking gains in education, health care and incomes. But poor and low-income countries have struggled to gain sustained international attention.In Ghana, the I.M.F. laid out a detailed rescue plan to get the country back on its feet — reining in debt and spending, raising revenue and protecting the poorest — as Accra negotiates with foreign creditors.Still, a nagging question for Ghana and other emerging nations in debt persists: Why will this time be any different?The latest rescue plan outlined for Ghana addresses key problems, said Tsidi M. Tsikata, a senior fellow at the African Center for Economic Transformation in Accra. But so did many of the previous ones, he said, and still crises recurred.The last time Ghana turned to the fund was in 2015. Within three years, the country was on its way to paying back the loan, and was among the world’s fastest-growing economies. Ghana was held up as a model for the rest of Africa.Agricultural production was up, and major exports — cocoa, oil and gold — were rising. The country had invested in infrastructure and education, and had begun a cleanup of the banking industry, which was riddled with distressed lenders.Yet Accra is again desperately in need. The I.M.F. loan agreement, and the delivery of a $600,000 installment in May, have helped stabilize the economy, settle wild fluctuations in currency levels and restore a modicum of confidence. Inflation is still running above 40 percent but is down from its peak of 54 percent in January.Cocoa pods at a cocoa farm. Ghana’s economy is dependent on exports of raw materials like cocoa, oil and gold, which rise and fall wildly in price.Francis Kokoroko for The New York TimesDespite the I.M.F.’s blueprint, though, Mr. Tsikata, previously a division chief at the fund for three decades, said the chance that Ghana wouldn’t be in a similar position a few years down the road “rests on a wing and a prayer.”The effects of devastating climate change loom over the problem. Within the next decade, a United Nations analysis estimates, trillions of dollars in new financing will be needed to mitigate the impact on developing countries.In Ghana, the government owed $63.3 billion at the end of 2022 not just to foreign creditors but also to homegrown lenders — pension funds, insurance companies and local banks that believed the government was a safe investment. The situation was so unusual that the I.M.F. for the first time made settling this domestic debt a prerequisite for a bailout. A partial restructuring, which cut returns and extended the due dates, was completed in February. While the haircut may have been necessary, it undermined confidence in the banks.As for foreign lenders, there are thousands of private, semipublic and governmental creditors, including China, which have different objectives, loan arrangements and regulatory controls.The magnitude and type of debt means “this crisis is much deeper than the type of economic difficulties Ghana has faced in the past,” said Stéphane Roudet, the I.M.F.’s mission chief to Ghana.The dizzying proliferation of lenders now characterizes much of the debt burdening distressed countries around the globe — making it also more complex and difficult to resolve.“You don’t have six people in a room,” said Joseph E. Stiglitz, a Nobel Prize winner and a former chief economist at the World Bank. “You have a thousand people in a room.”Victoria Chrappah, a trader, recounts the unfavorable business climate, as fluctuating exchange rates affect prices of imported goods from China.Francis Kokoroko for The New York Times‘Last Year Was the Worst of All.’Outside Victoria Chrappah’s narrow stall in Makola Market, snaking lines of sellers hawked live chickens, toilet paper packs and electronic chargers from giant baskets balanced on their heads. As restructuring negotiations with foreign lenders continue, households and businesses are doing their best to cope. Ms. Chrappah has been selling imported bathmats, shower curtains and housewares for more than 20 years.“Last year was the worst of all,” she said.Inflation surged, and the cedi lost more than half its value compared with the U.S. dollar — a blow to consumers and businesses when a country imports everything from medicine to cars. The Bank of Ghana jacked up interest rates to cope with inflation, hurting businesses and households that rely on short-term borrowing or want to invest. The benchmark rate is now 30 percent.Because of the rapidly depreciating currency, Ms. Chrappah explained, “you can sell in the morning at one price, and then you have to think of changing the price the following day.”Purchasing power as well as the value of savings has been halved. Doreen Adjetey, product manager for Dalex Swift, a finance company based in Accra, said a bottle of Tylenol to soothe her 19-month-old baby’s teething pain cost 50 cedis last year. Now it’s 110.A month’s worth of groceries cost more than 3,000 cedis compared with 1,000. Before, she and her husband had a comfortable monthly income of 10,000 cedis, worth about $2,000 when the exchange rate was 5 cedis to the dollar. At today’s rate, it’s worth $889.Joe Jackson, the director of business operations at Dalex, said default rates for small and medium-size enterprises “are through the roof,” jumping to 70 percent from 30 percent.The real estate and construction market has also tanked. “There’s been a drastic drop in the number of homes in the first-buyer segment of the market,” said Joseph Aidoo Jr., executive director of Devtraco Limited, a large real estate developer.Construction of an apartment complex in Accra. The real estate and construction market has suffered along with the rise in the cost of borrowing. Francis Kokoroko for The New York TimesWhen the pandemic struck in 2020, paralyzing economies, shrinking revenues and raising health care costs, fear of a global debt crisis mounted. Ghana, like many developing countries, had borrowed heavily, encouraged by years of low commercial rates.As the Federal Reserve and other central banks raised interest rates to combat inflation, developing countries’ external debt payments — priced in dollars or euros — unexpectedly ballooned at the same time that prices of imported food, fuel and fertilizer shot up.As Ghana’s foreign reserves skidded toward zero, the government began paying for refined oil imports directly with gold bought by the central bank.Even so, while the series of unfortunate global events may have supercharged Ghana’s debt crisis, they didn’t create it.The current government, like previous ones, spent much more than it collected in revenues. Taxes as a share of total output are also lower than the average across the rest of Africa.To make up the shortfall, the government kept borrowing, offering higher and higher interest rates to attract foreign lenders. And then it borrowed more to pay back the interest on previous loans. By the end of last year, interest payments on debt were gobbling up more than 70 percent of government revenues.“The government is bloated and inefficient,” said E. Gyimah-Boadi, the board chair of Afrobarometer, a research network. Half-completed schools, hospitals and other projects are abandoned when a new administration comes in. Corruption and mismanagement are also problems, several economists and business leaders in Ghana said.More fundamentally, Ghana’s economy is not set up to generate the kind of jobs and incomes needed for broad development and sustainable growth.“Ghana’s success story is real,” said Aurelien Kruse, the lead country economist in the Accra office of the World Bank. “Where it may have been a bit oversold,” though, is that “the fast growth has not been diversified.” The economy is primarily dependent on exports of raw materials like cocoa, oil and gold, which peak and swoop in price.Manufacturing accounts for a mere 10 percent of the country’s output — a decline from 2013. Without a thriving industrial sector to provide steady employment and produce exportable goods, Ghana has no other streams of revenue from abroad, which can build wealth and pay for needed imports.This model — the import of expensive goods and the export of cheap resources — characterized the colonial system.Senyo Hosi, executive chairman of Kleeve & Tove, an investment company based in Accra, said he had an agribusiness that produced rice in the Volta region and worked with more than 1,000 growers. He can’t do required upgrades to equipment, though, because 30 percent interest rates make borrowing impossible. “I stopped production,” he said.Delivery riders for an online food delivery app. Francis Kokoroko for The New York Times‘For Us It Means Shutdown.’As the global financial system struggles to restructure hundreds of billions of dollars in existing debt, the question of how to avoid the debt trap in the first place remains more urgent than ever. Large chunks of money are required to invest in desperately needed roads, technology, schools, clean energy and more. But dozens of countries lack the domestic savings needed to pay for them, and grants and low-cost loans from international institutions are scarce.Road works continue on sections of the National Route Six, a carriageway connecting Ghana’s capital to its second largest city, Kumasi.Francis Kokoroko for The New York Times“The fundamental issue is the need for financing,” said Brahima S. Coulibaly, a senior fellow at the Brookings Institution.So governments turn to international capital markets, where investors are foraging the world for high returns. Both political leaders and investors often look for short-term wins, whether in the next election or earnings call, said Martin Guzman, a former finance minister of Argentina who handled his country’s debt restructuring in 2020.This free flow of capital around the globe has resulted in a flood of financial crises. “Inequality is embedded in the international financial architecture,” a United Nations Global Crisis Response Group concluded in an analysis.Even worthy investments — and not all of them are — don’t always generate enough revenue to repay the loans. When bad times hit or foreign lenders get spooked, governments are left in the lurch. This process can be accelerated in Africa, where research has found there is an exaggerated perception of risk, which lowers credit ratings and raises financing costs.Without a safety cushion to fall back on, a small government cash crunch can turn into a disaster. Think of a household in a tough stretch that can’t cover next month’s rent and is evicted. Now instead of being a few hundred dollars in debt, the members of the household are homeless.“For us,” said Ken Ofori-Atta, Ghana’s finance minister, a credit downgrade “means shutdown.”Ghana’s finance minister, Ken Ofori-Atta, at his home in Accra: “For us, a credit downgrade means shutdown.”Francis Kokoroko for The New York TimesSeveral organizations have sketched out escape routes from the debt trap, including more low-cost lending from multilateral banks like the World Bank.Debt Justice, which advocates for debt forgiveness, along with many economists, argues that some of the $200 billion in debt must be erased. It has also called for governments and lenders to publicly reveal the amount and terms of loans, and what the money was used for so it can be better tracked and audited.Other research groups have looked at ways to stabilize the evolving African bond market and help governments survive short-term shortfalls as well as boom-and-bust swings in commodity prices.Mr. Ofori-Atta said he had “extreme confidence” that Ghana would have strong growth after it emerged from this debt tunnel.But the problem of finding manageable amounts of low-cost investment capital remains.Where does an African country — or any developing country — get the type of financing it needs to grow? Mr. Ofori-Atta asked.Before the cycle of debt crises is broken, that question will have to be answered. More

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    U.S. National Debt Tops $33 Trillion for First Time

    The fiscal milestone comes as Congress is facing a new spending fight with a government shutdown looming.America’s gross national debt exceeded $33 trillion for the first time on Monday, providing a stark reminder of the country’s shaky fiscal trajectory at a moment when Washington faces the prospect of a government shutdown this month amid another fight over federal spending.The Treasury Department noted the milestone in its daily report detailing the nation’s balance sheet. It came as Congress appeared to be faltering in its efforts to fund the government ahead of a Sept. 30 deadline. Unless Congress can pass a dozen appropriations bills or agree to a short-term extension of federal funding at existing levels, the United States will face its first government shutdown since 2019.Over the weekend, House Republicans considered a short-term proposal that would slash spending for most federal agencies and resurrect tough Trump-era border initiatives to extend funding through the end of October. But the plan had little hope of breaking the impasse on Capitol Hill, with Republicans still divided on their demands and Democrats unlikely to support whatever compromise they reach among themselves.The debate over the debt has grown louder this year, punctuated by an extended standoff over raising the nation’s borrowing cap.That fight ended with a bipartisan agreement to suspend the debt limit for two years and cut federal spending by $1.5 trillion over a decade by essentially freezing some funding that had been projected to increase next year and then limiting spending to 1 percent growth in 2025. But the debt is on track to top $50 trillion by the end of the decade, even after newly passed spending cuts are taken into account, as interest on the debt mounts and the cost of the nation’s social safety net programs keeps growing.But slowing the growth of the national debt continues to be daunting.Some federal spending programs that passed during the Biden administration are expected to be more costly than previously projected. The Inflation Reduction Act of 2022 was previously estimated to cost about $400 billion over a decade, but according to estimates by the University of Pennsylvania’s Penn Wharton Budget Model it could cost more than $1 trillion thanks to strong demand for the law’s generous clean energy tax credits.Pandemic-era relief programs are still costing the federal government money. The Internal Revenue Service said last week that claims for the Employee Retention Credit, a tax benefit that was originally projected to cost about $55 billion, have so far cost the federal government $230 billion. The I.R.S. is freezing the program because of fears about fraud and abuse.At the same time, several of President Biden’s attempts to raise more revenue through tax changes have been met with resistance.In late 2022, the I.R.S. delayed by one year a new tax policy that would require users of digital wallets and e-commerce platforms to start reporting small transactions to the agency. The policy was projected to raise about $8 billion in additional tax revenue over a decade.Last month, the I.R.S. delayed by two years a new provision that will stop high earners from being able to funnel extra money into their 401(k) retirement accounts. The agency described the delay as an “administrative transition period.”Meanwhile, lobbyists are pressing for loopholes in new taxes that have been enacted. The 15 percent corporate alternative minimum tax was devised to ensure that rich companies could no longer get away with paying single-digit tax rates because of creative use of deductions. However, many of these companies have been pushing the Treasury Department, which is currently writing the rules that will govern the tax, to create exceptions to preserve their most prized deductions. That tax is different from the global minimum tax that most countries, except the United States, are working to adopt.The pushback against efforts to raise revenue and cut spending has heightened the sense of alarm among budget watchdog groups that fear that a fiscal crisis is approaching.“As we have seen with recent growth in inflation and interest rates, the cost of debt can mount suddenly and rapidly,” said Michael A. Peterson, the chief executive of the Peter G. Peterson Foundation, which promotes fiscal restraint. “With more than $10 trillion of interest costs over the next decade, this compounding fiscal cycle will only continue to do damage to our kids and grandkids.”Republicans and Democrats in the House and the Senate continue to be divided on a path forward to avoid the near-term problem of a shutdown, and lawmakers have started pressing for leaders to begin focusing on a stopgap bill to keep the government operating past Sept. 30.But the red ink continues to mount.A Treasury Department report last week showed that the deficit — the gap between what the United States spends and what it collects through taxes and other revenue — was $1.5 trillion for the first 11 months of the fiscal year, a 61 percent increase from the same period a year ago.In an interview with CNBC on Monday, Treasury Secretary Janet L. Yellen said she was comfortable with the nation’s fiscal course because interest costs as a share of the economy remained manageable. However, she suggested that it was important to be mindful of future spending.“The president has proposed a series of measures that would reduce our deficits over time while investing in the economy,” Ms. Yellen said, “and this is something we need to do going forward.” More

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    Some Businesses Make ‘Woke Free’ a Selling Point

    A number of companies — from clothing to pet care — are trying to appeal to customers who think corporate America is pushing a liberal agenda.Jonathan Isaac is a forward for the National Basketball Association’s Orlando Magic, but he is perhaps better known as someone who chose not to protest police brutality against Black Americans during a summer of widespread activism involving racial injustice.Mr. Isaac, who is Black, turned that singular moment in July 2020 — when he decided not to join many other N.B.A. players in kneeling during the national anthem as the league restarted in a Covid “bubble” setting in Orlando, Fla. — into a platform as a conservative political activist. In 2022, he spoke at a rally of Christian nationalists and anti-vaccine Americans and wrote a book about why he did not join the protest. This year, he started Unitus, an apparel company centered on “faith, family and freedom.”“I wanted my values to be represented in the marketplace, especially when it came to sports and leisure wear,” Mr. Isaac said in an interview.Most companies used to do everything they could to avoid political controversies and, by extension, risk alienating potential customers. No longer. Seemingly everything in the United States is political now, including where you shop for socks and leggings.Companies like Anheuser-Busch and Target have recently faced backlash from the right over marketing and advertising decisions that were seen as a liberal Trojan horse: Anheuser-Busch for a transgender influencer’s promotion of Bud Light and Target for its Pride Month displays.Bud Light faced fierce backlash after the transgender influencer Dylan Mulvaney promoted the beer.Evan Agostini/Associated PressUnitus is one of a growing number of companies — from clothing retailers to pet care businesses — trying to appeal to those who have recoiled from what they see as corporate America pushing a progressive, liberal agenda. Unitus is featured on PublicSq., an online marketplace aimed at promoting companies it calls “pro-life,” “pro-family” and “pro-freedom.” PublicSq. began in July 2022 and now has more than 65,000 small businesses on its platform, noting a spike in numbers after the Bud Light and Target disputes.The platform offers “a nice, refreshing sort of break” from companies that have voiced more progressive views, said Michael Seifert, the founder and chief executive of PublicSq., mentioning businesses like Target, Ben & Jerry’s and Bank of America.Since Donald J. Trump was elected president in 2016, large corporations have faced heightened scrutiny — both from potential customers and their own employees — concerning their values. This includes everything from how companies publicly reacted to policies like Mr. Trump’s ban on immigration from several Muslim-majority countries to political donations by companies or their top executives.In turn, many companies made public declarations in support of diversity and inclusion. In 2018, Nike teamed up on an ad campaign with the former N.F.L. player Colin Kaepernick, who had started a movement of athletes kneeling to protest police brutality against Black Americans. After a Minneapolis police officer murdered George Floyd in 2020, many companies pledged financial support to and released statements of solidarity with the Black Lives Matter movement. In 2022, proposed legislation in Florida that opponents viewed as anti-L.G.B.T.Q. faced corporate resistance.Tracy Rank-Christman, a professor of marketing at the University of Wisconsin-Milwaukee, said the more leftward turn of some major companies in the mainstream could be driving away those with more conservative views.“Some of these consumers are essentially having either a boycott or backlash to these brands that are engaging in behaviors that do not align with their values,” said Ms. Rank-Christman, who studies consumer psychology.Nike built an ad campaign around Colin Kaepernick in 2018, after he became known for his protests against police violence.Alba Vigaray/EPA, via ShutterstockTarget faced protests from some on the right this year for merchandise it included in its Pride Month displays.Joe Raedle/Getty ImagesWhat’s driving the backlash is nothing new. According to research from Ms. Rank-Christman and other academics, consumers with what are known as “stigmatized identities” often take collective action against a company that they feel is attacking that identity. It has happened in the past with companies like Chick-fil-A, which drew criticism from the left for its support of conservative causes. In this case, Ms. Rank-Christman said, that identity is on the political right.Those same views, however, are squarely within the mainstream on PublicSq. Mr. Seifert said that most businesses on the platform did not explicitly state their views, but that every business was required to check a box and sign a commitment to PublicSq.’s core principles. They include a belief in “the greatness of this nation,” a vow to protect “the family unit” and celebrate “the sanctity of life,” and a belief that “small businesses and the communities who support them are the backbone” of the economy.What’s most important, Mr. Seifert said, is that businesses on the platform don’t antagonize “traditional values” in the way he said some large corporations have.Still, some companies on the platform promote their conservative bona fides more emphatically than others.Kevin Jones is the manager of Tiny Dog, an e-commerce pet supply business that he runs with his wife, Myra, out of Kingsport, Tenn. Mr. Jones said in an interview that he had been planning to work with another pet supplier in the state to expand his business, but that he had balked after it asked him for his stance on “the whole woke agenda.” That experience persuaded him to join PublicSq., he said, and market pet products to people who shared his values.Tiny Dog features no political or social messaging on its website, but Mr. Jones said his company didn’t “cater to alternative lifestyles.” He also said Tiny Dog had received a significant uptick in interest since it joined PublicSq.Others on the platform don’t necessarily view themselves as being conservative or catering to a particular political ideology. Mike Ritland, who founded a company that offers goods and training for dogs and is on PublicSq., said he didn’t think of his company as “anti-woke,” even though the platform calls itself that. He said he just wanted a way to increase his business.But for the companies that cater to consumers who share their conservative values, it doesn’t matter if they turn away more liberal buyers, or ones who just don’t want to see “100% Woke-Free American Beer” when they crack open a cold one, as is the case with Ultra Right Beer.In the short run, these companies know they’re targeting a niche market, said CB Bhattacharya, a professor at the Katz Graduate School of Business at the University of Pittsburgh. They are concerned less about maximizing profit and more about standing by their values. For a company that’s genuinely concerned about catering to consumers who oppose abortion, for example, the bottom line may not be paramount.“Even if it is just reds versus blues, they’re already slicing the market in half, and they’re saying, ‘Well, we don’t even care about the blues,’” Mr. Bhattacharya said.But whether these companies are sustainable in the long run is a more complicated calculus. A company whose business model depends on politically disaffected consumers is subject to constantly shifting political winds, as much as it is to supply-chain issues.Ultra Right Beer is selling a limited edition can with former President Donald J. Trump’s mug shot.Ultra Right BeerSome on the left have boycotted Chick-fil-A because of its owners’ conservative views, but that hasn’t hurt the chain.Erik S. Lesser/European Pressphoto AgencyThe energy that fuels consumers to boycott offending companies, and seek alternatives, also tends to be fleeting. According to Mr. Bhattacharya’s research, the prominent boycotts of Chick-fil-A (by liberals) and Starbucks (by conservatives) in 2012 didn’t hurt those companies. In fact, sales increased, perhaps owing to the energizing of consumers who supported those companies’ stances.An issue driving consumers to seek alternatives may also lose political salience, forcing businesses that have made it part of their appeal to change their approach. Nooshin Warren, a professor of marketing at the University of Arizona, said that if L.G.B.T.Q. rights became less politicized and more accepted across the country, conservative companies would have to rethink their strategy.Another problem is that some issues important to conservative consumers, such as not buying goods made in China, run up against economic reality. Mr. Seifert said each business on PublicSq. is asked to make its products in the United States or to get as many of its products as possible from there, but he acknowledged that manufacturing in China is necessary for some.A spokeswoman for Unitus said in an email that it made its products in Peru and Bangladesh, but that it was “committed to never sourcing Unitus products from China.”For Mr. Isaac’s part, he hopes Unitus becomes a leader in producing sleek and comfortable apparel and champions his core values: “faith, family and freedom,” which, he said, are “under assault” by mainstream corporations.“Unitus is, for me, giving people that encouragement to say: ‘No, I stand for these values. These values are important to me. And now I can wear them in a stylish, high-quality way,’” Mr. Isaac said. More

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    Battle Over Electric Vehicles Is Central to Auto Strike

    Carmakers are anxious to keep costs down as they ramp up electric vehicle manufacturing, while striking workers want to preserve jobs as the industry shifts to batteries.A battle between Detroit carmakers and the United Auto Workers union, which escalated on Friday with targeted strikes in three locations, is unfolding amid a once-in-a-century technological upheaval that poses huge risks for both the companies and the union.The strike has come as the traditional automakers invest billions to develop electric vehicles while still making most of their money from gasoline-driven cars. The negotiations will determine the balance of power between workers and management, possibly for years to come. That makes the strike as much a struggle for the industry’s future as it is about wages, benefits and working conditions.The established carmakers — General Motors, Ford Motor and Stellantis, which owns Chrysler, Jeep and Ram — are trying to defend their profits and their place in the market in the face of stiff competition from Tesla and foreign automakers. Some executives and analysts have characterized what is happening in the industry as the biggest technological transformation since Henry Ford’s moving assembly line started up at the beginning of the 20th century.Nearly 13,000 U.A.W. workers walked off the job at three plants in Ohio, Michigan and Missouri on Friday after talks between the unions and the companies in three separate negotiations failed to result in agreements before a Thursday deadline. Pay is one of the biggest sticking points: The union is demanding a 40 percent pay increase over four years but the automakers have offered roughly half as much.But the talks are about more than pay. Workers are trying to defend jobs as manufacturing shifts from internal combustion engines to batteries. Because they have fewer parts, electric cars can be made with fewer workers than gasoline vehicles. A favorable outcome for the U.A.W. would also give the union a strong calling card if, as some expect, it then tries to organize employees at Tesla and other nonunion carmakers like Hyundai, which is planning to manufacture electric vehicles at a massive new factory in Georgia.“The transition to E.V.s is dominating every bit of this discussion,” said John Casesa, senior managing director at the investment firm Guggenheim Partners who previously headed strategy at Ford Motor.“It’s unspoken,” Mr. Casesa added. “But really, it’s all about positioning the union to have a central role in the new electric industry.”Under pressure from government officials and changing consumer demand, Ford, G.M. and Stellantis are investing billions to retool their sprawling operations to build electric vehicles, which are critical to addressing climate change. But they are making little if any profit on those vehicles while Tesla, which dominates electric car sales, is profitable and growing fast.Ford said in July that its electric vehicle business would lose $4.5 billion this year. If the union got all the increases in pay, pensions and other benefits it is seeking, the company said, its workers’ total compensation would be twice as much as Tesla’s employees.Union demands would force Ford to scrap its investments in electric vehicles, Jim Farley, the company’s chief executive, said in an interview on Friday. “We want to actually have a conversation about a sustainable future,” he said, “not one that forces us to choose between going out of business and rewarding our workers.”Attendees at the Detroit Auto Show looking at a 2024 Chevy Silverado EV in Detroit this past week. Talk of the autoworkers’ strike loomed over the show.Brittany Greeson for The New York TimesFor workers, the biggest concern is that electric vehicles have far fewer parts than gasoline models and will render many jobs obsolete. Plants that make mufflers, catalytic converters, fuel injectors and other components that electric cars don’t need will have to be overhauled or shut down.Many new battery and electric vehicle factories are springing up and could employ workers from the plants that have shut down. But automakers are building most aggressively in the South where labor laws are tilted against union organizers, rather than in the Midwest, where the U.A.W. has more clout. One of the union’s demands is that workers in the new factories be covered by the automakers’ national labor contracts — a demand that the automakers have said they can’t meet because those plants are owned by joint ventures. The union also wants to regain the right to strike to block plant shutdowns.“We are at the dawn of another industrial revolution and the way we’re going is the way we went in the last industrial revolution — a lot of profit for a few and misery and not good jobs for the many,” said Madeline Janis, executive director of Jobs to Move America, an advocacy group that works closely with the U.A.W. and other unions.“The U.A.W. is really taking a stand for communities across the country to make sure this transition benefits everybody,” Ms. Janis added.Automakers have been racking up record profits during the last decade, but they cannot afford to lose time from work stoppages in their race to compete with Tesla and foreign automakers.The three companies are already struggling to get their electric vehicle business going. A new G.M. battery factory in Ohio has been slow to produce batteries, delaying electric versions of the Chevrolet Silverado pickup and other vehicles. Ford this year had to suspend production of its electric F-150 Lightning in February after a battery caught fire in one of the pickups that was parked near the factory for a quality check. And Stellantis won’t even begin selling any fully electric vehicles in the United States until next year.Those problems and Tesla’s growing sales could put the union in a strong position to extract a good deal.On Thursday, in a sign that automakers are willing to go much further than they had previously, G.M. offered a 20 percent pay raise over four years. That is half of what the union is seeking but far more than workers received in recent contracts. President Biden on Friday strongly supported the union in remarks at the White House. The administration has been pouring billions into programs to promote electric vehicles and does not want a strike to delay a centerpiece of its climate policy.Despite all the money that automakers have made in recent years, their executives express a profound unease about the growth of electric vehicles, which account for 7 percent of the U.S. new car market so far this year and are on track to surpass sales of one million this year. Managers are acutely aware that traditional companies like theirs have a poor track record of retaining dominance after a big change in technology. Witness the way that Apple sidelined Nokia and Motorola as cellphones became smartphones.Auto company executives and most industry analysts underestimated how quickly electric vehicles would catch on and cannot confidently forecast how sales, which have been bumpy lately, will grow in the future. “I don’t think anyone can perfectly predict what the adoption will be,” Mary T. Barra, the chief executive of General Motors, said in an interview with The New York Times last month.Speaking to “CBS Mornings” on Friday, Ms. Barra said an excessive pay raise would undermine G.M.’s ability to continue producing vehicles with internal combustion engines while also developing electric vehicles. “This is a critical juncture where investing is very important,” she said.Still, unions and their supporters are unlikely to express much sympathy for auto executives. Ms. Barra and the leaders of Ford (Jim Farley) and Stellantis (Carlos Tavares) have gotten tens of millions of dollars in compensation packages in recent years. The companies’ shareholders have been rewarded with dividends and share buybacks.Unions “are not going to have a lot of patience for sob stories,” said Karl Brauer, executive analyst at iSeeCars.com, an online marketplace.Adjusted for inflation, wages for autoworkers in the United States have fallen 19 percent since 2008, according to the Economic Policy Institute, a left-leaning research group.At the same time, union officials are aware of the changes in the industry and have said they do not want to handicap G.M., Ford and Stellantis as the companies try to recover ground they have lost to Tesla, which has aggressively resisted attempts to unionize its factories. The Detroit carmakers also face challengers like Rivian, a start-up that makes electric pickup trucks and sport utility vehicles in Illinois, as well as foreign-owned rivals like Mercedes-Benz and Toyota, whose U.S. factories, mostly in the South, are not unionized.“That’s the biggest challenge here,” Mr. Brauer added, “trying to commit to a long-term contract in an industry that is very uncertain and unpredictable over the next five years.”Union supporters say it would be wrong to blame workers if the traditional carmakers cannot compete with Tesla and other rivals.“If you look at the breakdown at what it costs to build an E.V., labor is a very small part of the equation. Batteries are the most,” Ms. Janis of Jobs to Move America said. “This idea that the U.A.W. is going to price Ford, G.M. and Stellantis out of the market is not true.”But other analysts said that a long work stoppage could help Tesla and foreign automakers gain ground on G.M., Ford and Stellantis.“If something happens to disrupt their business, does that give a leg up to the emerging electric vehicle makers?” said Steve Patton, who overseas the consulting firm EY’s work with auto companies. “Who stands to benefit if there is a protracted strike?” More

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    U.A.W. Starts Strike Small, but Repercussions Could Prove Far-Reaching

    Autoworkers walked off the job on Friday at three factories that produce some of the Detroit carmakers’ most popular vehicles, the opening salvos in what could become a protracted strike that hurts the U.S. economy and has an impact on the 2024 presidential election.Nearly 13,000 members of the United Auto Workers at plants in Ohio, Michigan and Missouri joined early Friday in what the union described as a targeted strike that could expand to more plants if its demands for pay raises of up to 40 percent and other gains were not met.The union’s four-year contracts with three automakers — General Motors, Ford Motor and Stellantis, which owns Chrysler, Jeep and Ram — expired Thursday, and the companies and the union remained far from striking new deals.The U.A.W.’s president, Shawn Fain, used sweeping language on Thursday to describe why his members were going on strike against all three automakers at the same time — something the union had never done in its nearly 90-year history.“This is our generation’s defining moment,” Mr. Fain, the union’s first leader elected directly by members, said in an online video. “The money is there, the cause is righteous, the world is watching, and the U.A.W. is ready to stand up.”The union and the companies did not negotiate on Friday, but the U.A.W. said it planned to resume bargaining on Saturday. President Biden dispatched two senior administration officials to Detroit on Friday to encourage the companies and union to reach agreements.At a Ford plant in Wayne, Mich., west of Detroit, strikers waved placards — one read, “Record Profits; Record Contracts” — and gave thumbs-up to honking vehicles. A metal sign on a chain-link fence read, “Absolutely NO foreign cars allowed.” The protesters were assigned to a six-hour shift on the picket line. If the strike continues, they will be called to one shift per week.While first and foremost a battle between autoworkers and automakers, the conflict could have far-reaching consequences. A lengthy strike would reduce the number of new cars available for sale, which could fuel inflation and force the Federal Reserve to keep interest rates high.The U.A.W.’s president, Shawn Fain, center, at the walkout early Friday at Ford Motor’s assembly plant in Wayne, Mich.Cydni Elledge for The New York TimesA strike also presents a quandary for Mr. Biden, who has called for rising incomes but must also be mindful of the strike’s economic impact and his goal to promote electric vehicles as a solution to climate change.Speaking at the White House on Friday, the president strongly supported the union. “Over the past decade, auto companies have seen record profits, including in the last few years, because of the extraordinary skill and sacrifices of U.A.W. workers,” he said. “But those record profits have not been shared fairly.”The U.A.W. says its pay demands roughly correspond to the increases in the compensation of the top executives at Ford, G.M. and Stellantis. The raises are also meant to help compensate workers for the ground they have lost to inflation and big concessions the union made to the automakers after the 2007-8 financial crisis, when G.M. and Chrysler were forced to restructure themselves in bankruptcy court.But auto executives say they already pay production workers substantially more than rivals, like Tesla and Toyota, whose U.S. workers are not unionized. The companies also contend that such big raises would undermine their efforts to develop electric vehicles and remain relevant as the industry makes a difficult and costly shift from gasoline cars and trucks to electric vehicles.If unions got all that they were asking for, “we would have to cancel our E.V. investments,” Jim Farley, the chief executive of Ford, said in an interview on Friday. Instead, Ford would need to concentrate on large sport utility vehicles and pickups that generate the most profit, he said.Ford, which employs the most union members, reported a profit of $1.9 billion in the second quarter, equal to 4 percent of its sales. Tesla made $2.7 billion in the same period, about 11 percent of its sales.Mr. Farley sounded pessimistic about the chances of agreeing on a contract soon. “They are not negotiating in good faith if they are proposing deals that they know are going to crater our investments,” he said.Mr. Fain’s decision to shut down just three factories is a departure for the union, which in previous strikes typically walked out of all the factories of a single automaker. By interrupting production of some of the most profitable vehicles, while allowing most plants to keep operating, the union hopes to inflict pain on the carmakers while allowing most of its members to continue collecting paychecks.But it may be difficult for the union to limit the damage to its members’ incomes. Ford told workers at a facility in Michigan, who were not on strike, to stay home Friday because of parts shortages caused by the strike. G.M. said it would probably lay off 2,000 workers at a factory in Kansas next week because of a lack of parts produced at the factory near St. Louis that is on strike.Fewer than 10 percent of the nearly 150,000 U.A.W. members at the three companies are on strike. Limited strikes could allow the union to maintain the pressure longer by preserving its strike fund of $825 million. The union will pay striking workers $500 a week and cover their health insurance premiums.Automakers have been earning record profits “because of the extraordinary skill and sacrifices of U.A.W. workers,” President Biden said at the White House on Friday.Anna Rose Layden for The New York TimesIn addition to the Ford plant in Michigan, which makes the Bronco and the Ranger pickup truck, and the G.M. plant in Wentzville, Mo., which makes the GMC Canyon and the Chevrolet Colorado, workers shut down a Stellantis complex in Toledo, Ohio, that makes the Jeep Gladiator and Jeep Wrangler. If no agreement is reached, the union is expected to target additional factories in weeks to come.The union is also seeking cost-of-living adjustments that would protect workers if inflation flares up again. And it wants to reinstate pensions that the union agreed to do away with for newer workers after the financial crisis, improved retiree benefits and shorter work hours. The union also wants to eliminate a wage system that starts new hires at much lower wages than the top U.A.W. pay of $32 an hour.As of Friday last week, the companies had offered to raise pay by around 14.5 percent to 20 percent over four years. Their offers include lump-sum payments to help offset the effects of inflation, and policy changes that would lift the pay of recent hires and temporary workers, who typically earn about a third less than veteran union members.In a last-minute attempt to keep assembly lines running, G.M. offered its employees a 20 percent raise late Thursday and said it was willing to pay cost-of-living adjustments to veteran workers. The 20 percent increase would be far more than employees had received in decades. But the union rejected the offer, which it says would barely compensate for inflation.Autoworkers striking at the G.M. factory in Wentzville, Mo.Neeta Satam for The New York TimesLeaders of the automakers have criticized the U.A.W.’s tactics, focusing on Mr. Fain, who became president in March and declared an end to what he said were overly friendly relations between union leaders and auto executives. He took office after a federal corruption investigation resulted in prison terms for two former U.A.W. presidents.Carlos Tavares, the chief executive of Stellantis, has called Mr. Fain’s strategy “posturing.” Mr. Farley of Ford said the two sides should be negotiating instead of “planning strikes and P.R. events.” And Mary T. Barra, the G.M. chief executive, said that “every negotiation takes on the personality of its leader.”If the autoworkers are successful, they could inspire workers in other industries. Union activism is on the rise: Hollywood screenwriters and actors have been on strike for months, and in August, United Parcel Service employees won their biggest raises ever in a contract negotiated by the International Brotherhood of Teamsters.“Workers have been squeezed for too long and now are realizing they can do something about it,” said Mijin Cha, an assistant professor at the University of California, Santa Cruz, who studies the relationship between labor’s interests and the fight against climate change. “People see there is a pathway to more economic security and workers do have power together.”Late on Friday, at an outdoor rally in downtown Detroit attended by several hundred U.A.W. members, Mr. Fain introduced Senator Bernie Sanders, a Vermont independent, who told the crowd: “The fight you are waging here is not just about decent wages and working conditions and pensions in the auto industry. It’s a fight to take on corporate greed.”The strikes come as auto production is still recovering from the effects of the pandemic, which caused shortages of semiconductors and other components. Car prices and wait times have come down, but dealer inventories remain low and a lengthy strike could eventually make it hard to find popular U.S.-made models.“We’re not back to speed inventory-wise,” said Wes Lutz, the owner of Extreme Dodge, a car dealership in Jackson, Mich.Wes Lutz, the owner of Extreme Dodge in Michigan said, “We’re not back to speed inventory wise.”Brittany Greeson for The New York TimesScarcity is not always bad for carmakers. It allowed them to earn higher profit margins during the pandemic. And it would benefit any carmakers that were having trouble moving some models. Pat Ryan, chief executive of the car-shopping app Co-Pilot, said that Stellantis had at least 100 days of inventory for brands like Dodge and Chrysler, and that a strike could help it clear many dealers’ lots.Still, if prices for popular models rise, that will be yet another speed bump in the Federal Reserve’s road to lowering inflation, and a political liability for Mr. Biden. The president, who has no formal role in the negotiations, said Friday that he had been in touch with union leaders and auto executives, in addition to dispatching the two administration officials to Detroit.Reporting was contributed by More

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    Bernie Sanders Condemns Corporate Greed at U.A.W. Detroit Rally

    At a rally in downtown Detroit on Friday, just a couple of hundred yards from the headquarters of General Motors, Senator Bernie Sanders of Vermont addressed a cheering crowd of United Auto Workers members, capping a day of walkouts by the union with an effort to rally support for the strike.Mr. Sanders echoed the populist talking points of his campaigns for president in 2016 and 2020, speaking about income inequality in the United States, and he criticized the chief executives of the Big Three automakers — G.M., Stellantis and Ford Motor — for their compensation.“The fight you are waging here is not just about decent wages and working conditions and pensions in the auto industry,” Mr. Sanders said. “It’s a fight to take on corporate greed and tell the people on top the country belongs to all of us, not just the few.”The rally took place along Detroit’s riverfront, near the city’s iconic Renaissance Center towers, home to G.M. headquarters. Also nearby is the Huntington Place convention center, where auto executives were gathering for a black-tie charity ball to kick off the 2023 Detroit auto show.Several hundred U.A.W. members, most of them clad in labor’s red shirts and waving picket signs, crowded in front of the rally’s small stage. A dozen television cameras were jammed together on another small, raised platform to record the event. As the crowd awaited the first speakers, a sound system blared upbeat anthems like Sister Sledge’s “We Are Family“ and “We’re Not Going to Take It” by Twisted Sister.Throughout Mr. Sanders’s speech, they erupted into chants of “Bernie, Bernie!”Mr. Sanders spoke about the growing gap between C.E.O. and worker pay. The U.A.W. has said that one of the driving forces behind its demands for higher pay is the growth in compensation for the top leaders at the Big Three automakers.Addressing the Big Three leaders, Mr. Sanders said, “Understand, C.E.O.s, the sacrifices your workers have made over the years.”In a comment directed at Mary T. Barra, G.M.’s chief executive, Mr. Sanders said, “Do you understand what it’s like to live on $17 an hour?” Mr. Sanders went on to make pointed remarks about the growth in compensation for Ms. Barra, as well as Carlos Tavares and Jim Farley, her counterparts at Stellantis and Ford.Mr. Sanders also lamented the gap in pay between newer and more veteran workers at the automakers. “Time is long overdue to end the two-tiered system,” he said.Among Mr. Sanders’s talking points was the country’s decline in well-paying union jobs. Mr. Sanders has long railed against the forces that have moved many manufacturing and automotive jobs overseas, including globalization and free trade agreements.He closed his speech by saying, “Let us all stand with the U.A.W.” More

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    The Strike Could Mean a Rise in Car Prices for Consumers

    It’s not a great time to be in the market for a new car.Prices are rising, options are limited and interest rates are higher than they’ve been in over 20 years. A targeted U.A.W. strike began at three plants in the Midwest at midnight Thursday, and if it lasts long enough, it could cut the supply of vehicles and push prices even higher.The Federal Reserve started raising interest rates in March last year to combat inflation, eventually pushing its benchmark rate to the highest level since 2001. That has had an effect on rates for auto loans, which are now about 7.4 percent on average for new cars and 11.2 percent for used cars, according to Edmunds.“You’re going to get sticker shock in two different ways: the actual sticker price, and the cost of financing that purchase,” said Greg McBride, chief financial analyst for Bankrate, an online service that compares the interest rates of various financial products.Higher interest rates mean those who can put off buying a new car until next year or later, probably will. High rates were the top factor holding back business for car dealers this quarter, according to a recent survey from Cox Automotive.Mark Scarpelli, the owner of Raymond Chevrolet in Antioch, Ill., said few people who buy cars from his dealership pay in cash, and more expensive, larger vehicles are increasing in popularity. Still, some buyers cannot wait.“Our folks are needing that vehicle to get to their jobs, support their families, pick up their son or daughter from day care,” he said. “While, in some cases cars and trucks may be a novelty or third or fourth vehicle, 99 percent of the vehicles we sell are for necessity.” More

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    U.A.W. Holds Strike at GM, Ford and Stellantis. Here’s What to Know

    Negotiators for the United Auto Workers union and the three large U.S. automakers — General Motors, Ford Motor and Stellantis, the parent of Chrysler, Jeep and Ram — remained far apart as a limited strike began on Friday.The strike is not a full-scale walkout by the union’s roughly 150,000 members but a “limited and targeted” work stoppage by about 12,700 workers that could expand if talks remain bogged down. It began after workers’ four-year contracts expired.The union must negotiate separate deals with each of the companies on issues including pay and retirement benefits.What is the union seeking?The U.A.W. has demanded a 40 percent wage increase over four years — an amount that union officials said matches the raises the top executives at the three companies have received over the last four years. Those raises are also meant to compensate for more modest increases the autoworkers received in recent years and the concessions the union made to the companies after the 2008 financial crisis.The union is also seeking cost-of-living adjustments that would nudge wages higher to compensate for inflation. And it wants a reinstatement of pensions for all workers, improved retiree benefits and shorter work hours, as well as and an end to a tiered wage system that starts new hires at much lower wages than the top U.A.W. pay of $32 an hour.What have the companies offered?As of last Friday, the companies offered to raise pay by around 14.5 percent to 20 percent over four years. Their offers include lump-sum payments to help offset the effects of inflation, and policy changes that would lift the pay of recent hires and temporary workers, who typically earn about a third less than veteran union members.It was not clear how much progress the union and the companies have made on the other issues.What have the negotiators said publicly?The companies say that they are investing billions in a transition to battery-powered vehicles, which makes it harder for them to pay substantially higher wages. They say they are at a disadvantage compared with nonunion automakers like Tesla, which dominates the sales of electric cars.On Thursday, G.M. said in a statement that it had made a new offer to the union and that the company was engaged in “continuous, direct, and good faith negotiations” in an effort to avoid a strike.Declaring that “the future of our industry is at stake,” Ford said on Wednesday that it was “ready to reach a deal,” adding, “We should be working creatively to solve hard problems rather than planning strikes and P.R. events.”Stellantis said on Wednesday that its “focus remains on bargaining in good faith to have a tentative agreement on the table before tomorrow’s deadline.”In a 40-minute address on Wednesday, the union’s president, Shawn Fain, called the automakers’ offers “insulting.”“For the last 40 years, the billionaire class has been taking everything and leaving everybody else to fight for the scraps,” he said. “We are not the problem. Corporate greed is the problem.”What will striking workers get paid?The union plans to pay striking workers $500 per week and cover the cost of their health insurance premiums. The union’s $825 million strike fund is big enough to cover payments to workers in a full strike against all three companies for about three months — although the U.A.W. has said it would expand the limited stoppage only if talks bogged down.What does the strike mean for consumers?Only certain models of cars are affected right now, but if the strike lasts long enough to start impacting inventories, car dealers will have fewer vehicles on their lots and may start pushing up prices on the ones they do have.This comes at a time when car prices had already been rising, and the average interest rates on auto loans had been climbing — making it harder for buyers to afford cars. More