Dallas—— If the UAW strike doesn’t end soon, car shoppers will face a new round of price shocks, especially for popular cars that are already in short supply.
The longer the strike lasts, the fewer vehicles will be in dealer lots. Dealers could lose the incentives manufacturers pay them to lower prices to boost sales.
Panic buying by consumers could make the situation worse.
Many analysts believe it will take a few weeks for dealer lots to look a little empty. Ford, General Motors and Stellantis built up vehicle inventories ahead of Thursday night’s strike, while the UAW decided to limit the strike to three plants — at least for now.
“The guys at the dealership will tell you, ‘UAW this and that,’ but they The parking lots are now full of cars.” He estimated that at current inventory levels and the pace of car sales, most car buyers won’t notice much of a change for a few months.
The Detroit Three held vehicles on inventory for an average of 52 days before selling in August, compared with 31 days at the beginning of last year, according to Edmunds data.
The UAW began strikes at plants that make only a handful of vehicles — Ford Broncos and Rangers, Jeep Wranglers, Chevy midsize pickups and GMC vans. Dealers have ample inventory.
However, if the strike doesn’t end soon, some brands and models could experience shortages — big sellers or vehicles that are already in short supply, such as the Chevrolet Silverado and Tahoe, GMC Sierra and Ford F Series pickup truck. These car companies have factories in Mexico and can continue to produce certain models as long as parts are available.
While the Detroit Three’s auto supply will largely depend on how long the strike lasts and how quickly it spreads to other plants — there were rumors Friday that more plants could be added next week — there are other factors.
Garrett Nelson, an automotive analyst at CFRA Research, expects manufacturers to eliminate incentives paid to dealers to boost sales. These incentives allow dealers to lower sticker prices, and they often target slower-selling models.
The biggest variable may be consumer psychology – panic buying can drive up prices.
“The impact on prices is almost instantaneous,” Nelson said. “Dealers will say, ‘Look, we’re not sure how many additional vehicles we’re going to get.’ There could be a level of panic effect that incentivizes consumers to make purchases sooner rather than later.”
There will be a knock-on effect as cars from Ford, General Motors and Fiat Chrysler’s successor Stellantis become harder to find. Consumers in need of vehicles may turn to non-union competitors such as Toyota, Honda and Tesla, which can charge them more.
“You’re going to start to see pricing being impacted across the board, not just in new business segments,” Drewry said. As consumers look for affordable alternatives to new cars, “used car values are at par with last year’s highs.” It’s down slightly, but it may start to pick up.”
Consumers who have leased vehicles that are about to expire may be particularly vulnerable. Drewry said leasing companies want their cars back when the used-car market is hot and may be reluctant to extend leases.
Anyone buying a new, used or leased car now will also be hit by higher interest rates. According to Bankrate, the average interest rate on new car loans this week was 7.46%, and the average interest rate on used car loans was 8.06%.
High rates have led to a surge in consumers refusing to ride. The New York Fed said this month that the denial rate for auto loans now stands at 14.2%, the highest level since the bank began tracking the data in 2013, and up from 9.1% six months ago. (Mortgage, credit card and other loan denials have also increased as lenders cower at the growing number of people who are behind on their payments. Household debt is rising.)
Car prices were rising long before auto workers raised the possibility of a strike. Chip shortages, global supply chain disruptions and strong demand have pushed up prices.
The average price of a new car jumped from $39,919 in 2020 to $48,798 so far this year, according to Kelley Blue Book. Cheap cars have all but disappeared, forcing consumers to extend loan terms to limit monthly payments. Used car prices increased significantly in 2021 and 2022, but fell slightly this year.
Even if the strike is resolved quickly, prices will almost certainly rise because automakers’ labor costs will increase.
“It’s almost a foregone conclusion that the UAW will succeed in raising wages significantly,” said Patrick Anderson, founder of Anderson Economic Group, a research firm that conducts market analyses. “Part of that is currency. Inflated, partly because of automaker profits and partly because of the leverage that the UAW has right now, there’s a shortage of inventory and the economy still has a lot of people who want to buy cars.”
The UAW is demanding a 36 percent wage increase over four years and other demands that would increase company expenses. Ford, General Motors and Stellantis have proposed raising wages by about half.
UAW President Shawn Fain is sensitive to the impression that the union’s gains will come from consumers’ wallets. He noted that prices had been rising before the strike and said labor costs accounted for only a small portion of the Big Three’s total costs.
“They could double our wages without raising car prices and still make billions in profits,” he said in an online address to union members this week.
That’s enough to make many motorists consider avoiding parking lots and using their existing cars for longer. Their bank account would be healthier without the car payment.
“Keeping your car is not a bad thing,” said Edmunds analyst Drury. “It’s much more durable than you think.”
