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.
“People at dealerships will tell you, ‘UAW this and that,’ but their parking lots are packed with cars right now,” said Ivan, director of insights at Edmunds, an auto industry information provider. Ivan Drury said. He estimated that at current inventory levels and the pace of vehicle 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.
The union said it had a “fairly productive conversation” with Ford on Saturday, while Strantis detailed its recent proposals to the union.
Mark Stewart, chief operating officer of Stellantis North America, also said his company has contingency plans to limit the impact on consumers, but he declined to provide details.
“We really want to encourage customers: Don’t be afraid,” Stewart said, advising them to check out the deals dealers are offering.
However, if the strike doesn’t end soon, shortages could occur on some makes and models — vehicles that sell in large volumes or are already in short supply, such as the Chevrolet Silverado and Tahoe, GMC Sierra and Ford F-Series pickup trucks. 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 (rumors on Friday suggested 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 areas,” Drury said. “Used car values are down slightly from last year’s highs but may be starting to recover” as consumers look for affordable alternatives to new cars.
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 not enough 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. On Saturday, Stellantis detailed its latest offer for a cumulative nearly 21% increase in hourly wages, roughly in line with proposals from Ford and General Motors.
Politicians have also been urging automakers to consider forgoing wages and benefits to help the employer’s workers during the Great Recession.
Former President Barack Obama said in a statement on Saturday: “Now that our automakers are enjoying strong profits, it is time to do the right thing by these workers so that the industry can become better than It used to be more united and competitive.”
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.”