The United Auto Workers Union thought it secured a landmark win in Detroit but it may just be the excuse automakers needed to slash their workforces and replace them with robots. Investors and executives of Detroit’s “Big 3” automakers, Ford, General Motors (GM), and Stellantis are already moving to automate their factories to cut swelling labor costs following a record-setting 25% wage hike over 4 years for unionized workers in 2023.

The Big 3 signed these costly new contracts with the United Auto Workers (UAW) union last November following a prolonged strike that shut down dozens of manufacturing plants. This was a major win for union workers as they hadn’t seen significant wage hikes in far too long.

It might also seem like a massive loss for these automakers at the surface and they sure want you to think that. However, labor only makes up for about 5-10% of the cost of the average vehicle, making the 25% hike rather inconsequential in the grand scheme of things.

This was especially evident when GM announced a gargantuan stock buyback of $10 billion just weeks after the strike ended, more than the roughly $9 billion in extra labor costs it would take on over 4 years from the new contracts.

The price of labor will also likely continue to drop for automakers as EVs start to dominate the market. Electric vehicles require 30-40% less labor to build than gasoline cars and they often don’t require much skilled labor either.

While there is much debate on the topic, critics of the automakers argue that the companies are using the new union contracts as an excuse to turn to automation. Whether adoption of automation is entirely necessary or if the Big 3 just wants to bolster it’s bottom line, it seems inevitable.

Executives are already looking more seriously at technologies like advanced industrial robots, collaborative bots working alongside humans, and AI-enhanced automation and equipment to improve productivity on the factory floor.

While this trend is not expected to displace a large number of workers immediately, increased robotization will almost certainly lead to reductions in headcount over time.

Labor Costs Eating into Profits Create Sense of Urgency Among Leaders

The recently signed UAW deal includes ratification bonuses per member and hourly wage hikes to be implemented from 2023 to 2027. With other benefits, Ford says that it’s on the hook for nearly $9 billion in additional labor costs over 4 years versus its prior contract.

This isn’t a small sum by any means but it’s well within the forecasted increases in labor costs.

“We have our work cut out for us,” Ford’s CFO John Lawler told investors in November, citing “opportunities in automation” as one area under review to reduce the impact of these higher costs.

Also read: GM Announces $10 Billion Buyback After Complaining About Union Raises

GM indicated that labor cost inflation from its new contract would add up to around $500 per vehicle over the next 4 years. As consumer budgets tighten, passing the full cost to buyers via higher prices could undermine sales and market share.

That puts pressure on manufacturers to offset expenses through operational efficiencies, including the adoption of new technologies. That includes automation, advanced robotics, and AI-powered solutions.

Robots Already Dominate the Auto Industry

Robotic automation is hardly new for automakers, though there is still much room for growth here. Car manufacturing has used robots since GM’s first automated die-casting machine in the early 1960s.

Today, the auto industry has been increasingly relying on robots to perform manufacturing tasks. In 2022 alone, research found that over 130,000 robotic units were installed globally. The industry is only second to electronics manufacturers in this particular area.

Systems that handle demanding physical tasks like welding and materials transportation are among the most widely used as these tasks require consistency, precision, and reliability that often exceed human capabilities, especially over long shifts.

AGVs, or automated guided vehicles, ferry materials between workstations in the largest manufacturing facilities. Machine vision and AI-guided self-driving functions previously required a human driver. Collaborative robots now work in concert with people to augment their capabilities.

Tesla (TSLA) can be used as an example of this trend as the electric vehicle manufacturer has set an aggressive pace for next-gen automation, aiming to cut production costs per vehicle in half. Its factories already minimize human labor compared to rivals.

This is an advantage that startups like Rivian are emulating. Pressure is rising across the industry to keep pace. Otherwise, legacy automakers may fall behind in their ability to offer more competitive prices or generate profits for shareholders.

Robots Aren’t Going to Replace Your Job… Yet

Despite accelerating technology adoption, most analysts believe that automation will replace auto workers gradually rather than in sudden waves of pink slips. Outside shocks like recessions pose more risk to workers than mass industry-wide layoffs prompted by this trend.

“The mode of operation for decades now is ‘ride the attrition curve’” said Jim Schmidt of consultancy Oliver Wyman. Rather than abruptly displacing large chunks of their staff, automakers will likely let headcounts slowly decline over time through retirements and selective hiring.

Some jobs, like vehicle interior design requiring aesthetic judgment, may stubbornly require the presence and actions of humans for years to come. Meanwhile, advanced robots require skilled technicians and programmers to be installed, operated, and serviced, which can offset productivity gains as specialists charge high fees for performing their services.

Nonetheless, even gradual robotization could thin the ranks over decades, requiring proactive policies to retain and retrain displaced workers to make sure they are not permanently left out of the industry. Critics argue that the recent UAW deal focused too narrowly on wage gains while failing to address looming technological impacts.

Autoworkers won’t be the only group affected by the rise of automation either. Labor is expensive so every industry is looking for ways to cut these expenses out, no matter what harm it may do to workers around the world. The auto industry will likely be one of the first to replace swathes of workers with robots but it certainly won’t be the only one.

Preparing Workers for the Era of AI-Enhanced Automation

With Detroit now being economically motivated to accelerate factory automation, the UAW faces pressures to better support a potential short-term transition for workers.

“There’s robots in every factory,” UAW President Shawn Fain acknowledged last year. “Companies have used technology as a way to cut jobs instead of making them easier”, he added.

Ensuring that robots complement human workers rather than replace them outright will require expanding retraining programs and potentially reforming educational curriculums. Younger recruits need skills aligned with future factory roles managing and maintaining, rather than directly operating, production lines.

Automakers would have to be committed to redeploying a portion of labor cost savings toward such workforce development programs. New union contracts could mandate cushions like job reassignment clauses for those displaced by automation. However, the latest agreement signed may have missed a golden opportunity to secure a smooth transition.

Done right, advanced automation can relieve people from dull, dangerous, and physically taxing tasks without hampering their standard of living. However, the clock is ticking for Detroit and its unions to conceive smart policies as robotic solutions become increasingly economical to manufacturers.