Impending Auto Workers Strike May Escalate Vehicle Prices, Though Not Immediately—Unless Consumer Anxiety Sets In

by Sophia Chen
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United Auto Workers strike

If the ongoing strike by the United Auto Workers union is not resolved in a timely manner, prospective car buyers may face elevated prices, particularly for vehicles that are already scarce.

The longer the strike persists, the more the vehicle inventories at dealerships are expected to dwindle. Furthermore, dealers could lose the financial incentives that automotive manufacturers typically provide to encourage price reductions and stimulate sales.

An exacerbating factor could be hasty purchasing by concerned consumers.

Several industry analysts predict that it may take a few weeks for dealerships to exhibit noticeably depleted inventories. Ahead of the strike’s commencement on Thursday evening, major automakers like Ford, General Motors, and Stellantis amassed sizable vehicle stockpiles. For the time being, the UAW has limited the strike to only three plants.

Ivan Drury, Director of Insights at Edmunds, an automotive industry information provider, believes that given current inventory levels and sales rates, most buyers will likely not experience significant changes for a couple of months.

Vehicles from Detroit’s Big Three sat unsold for an average of 52 days in August, an increase from 31 days at the beginning of the previous year, as per data from Edmunds.

Currently, the UAW has initiated strikes at plants responsible for manufacturing a limited range of vehicles—such as Ford Broncos and Rangers, Jeep Wranglers, Chevrolet mid-sized pickups, and GMC vans—of which dealerships maintain substantial inventories.

However, if the labor dispute is not swiftly resolved, scarcity may hit certain high-demand models and vehicles already in short supply, like the Chevrolet Silverado and Tahoe, GMC Sierra, and Ford F-Series pickups. These companies do maintain production facilities in Mexico that could theoretically continue some manufacturing, contingent upon available parts.

Several other elements could influence vehicle availability, including how quickly the strike spreads to additional plants. Garrett Nelson, an auto analyst for CFRA Research, anticipates that manufacturers will terminate the incentives offered to dealers, which allow for reduced pricing, often aimed at models that are less popular.

Consumer sentiment and a possible surge in panic-buying could rapidly inflate prices. “Immediate price impact is a real possibility,” states Nelson. Dealers may tell potential buyers that they are uncertain about future inventory levels, possibly triggering a sense of urgency among consumers to finalize purchases sooner.

The reduced availability of vehicles from Ford, GM, and Stellantis could produce a ripple effect, compelling consumers to consider non-union competitors like Toyota, Honda, and Tesla, who may subsequently capitalize on the situation through price increases.

The pricing ecosystem could be affected more broadly, asserts Drury, not only for new but also used vehicles. As new cars become less accessible, the demand for pre-owned vehicles could rise, subsequently pushing up their prices.

Leaseholders nearing the end of their contracts could find themselves in a particularly precarious situation, with leasing companies eager to reclaim their vehicles while the used-car market is buoyant.

Complicating matters further are the increasing interest rates; the current average rate for a new-car loan is 7.46%, and for a used car, it stands at 8.06%, according to Bankrate data.

Rejection rates for auto loans have surged to 14.2%, as reported by the Federal Reserve Bank of New York, the highest rate since record-keeping commenced in 2013, exacerbating the difficulty for consumers seeking to secure vehicle financing.

While the possibility of a strike was emerging, vehicle prices had already been on an upward trajectory due to chip shortages, global supply chain disruptions, and heightened demand. According to Kelley Blue Book, the average price of a new vehicle has increased from $39,919 in 2020 to $48,798 so far this year.

Even if the strike is resolved expeditiously, automakers’ labor costs are expected to rise, further pressuring vehicle prices.

The UAW is negotiating for a 36% wage increase over the next four years, among other requirements that would elevate operational expenses for the companies. Counteroffers from Ford, GM, and Stellantis suggest wage boosts of approximately half that amount.

UAW President Shawn Fain downplays the notion that consumers will bear the brunt of increased labor costs, emphasizing that labor represents only a fraction of the Big Three’s total operational costs.

For motorists contemplating their next move, retaining their existing vehicle may be the most financially prudent decision. “Keeping your current vehicle is not a poor choice,” advises Drury. “It’s likely more durable than you presume.”

Frequently Asked Questions (FAQs) about United Auto Workers strike

What is the main focus of the article?

The article primarily focuses on the ramifications of the ongoing strike by the United Auto Workers union on the automotive market. It examines how this labor action could lead to increased vehicle prices, depleted inventories at dealerships, and changes in consumer behavior.

How might the strike affect vehicle inventories at dealerships?

The strike is expected to deplete vehicle inventories at dealerships over time, particularly for models that are already in short supply. The longer the strike persists, the more significant the impact is expected to be on available stock.

Could the strike lead to increased vehicle prices?

Yes, the strike could contribute to a rise in vehicle prices. This effect could be further amplified if consumers engage in panic buying, which would drive up demand and, consequently, prices.

What other economic factors are discussed in the article?

The article also discusses the increase in interest rates, affecting both new and used car loans. It mentions that loan rejection rates have surged to 14.2%, making it more challenging for consumers to secure vehicle financing.

How might the strike affect the used-car market?

The strike could create a ripple effect where, as new cars become harder to find, the demand for used cars could increase. This in turn could drive up the prices in the used-car market.

What are manufacturers and the UAW currently negotiating?

The UAW is asking for a 36% increase in wages over the next four years, among other requirements that would elevate operational expenses for the companies. Counteroffers from Ford, GM, and Stellantis suggest wage boosts of approximately half that amount.

What could be the consumers’ immediate response to the strike?

An immediate response from consumers could be panic buying, driven by fears of dwindling inventories and future price hikes. This psychological factor could have an almost instantaneous impact on vehicle prices.

Are non-union automotive companies affected by the strike?

While non-union companies like Toyota, Honda, and Tesla are not directly involved in the strike, they could potentially benefit from it. Consumers unable to find vehicles from the striking companies might turn to these non-union competitors, who could then have the leverage to raise their prices.

Is holding on to a current vehicle a viable option?

Yes, retaining an existing vehicle could be a financially prudent decision, especially given the potential for rising new and used car prices, as well as higher interest rates for auto loans.

What is the role of consumer psychology in this situation?

Consumer psychology could be a significant factor, particularly if panic buying sets in. Dealers capitalizing on this uncertainty could trigger a sense of urgency among consumers, thereby driving up demand and prices rapidly.

More about United Auto Workers strike

  • United Auto Workers Union Official Website
  • Edmunds Automotive Research
  • CFRA Research on Automotive Industry
  • Bankrate’s Latest Auto Loan Rates
  • Kelley Blue Book Vehicle Pricing Information
  • Federal Reserve Bank of New York Statistics
  • Anderson Economic Group Research Reports
  • UAW President Shawn Fain’s Online Presentation

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