UAW 2023 strike update: Work stoppage will raise car prices, but not right away – unless consumers panic

DALLAS– Car buyers are headed for another round of shocks if the United Auto Workers strike doesn’t end soon, especially for popular vehicles that are already in short supply.

The number of vehicles on dealer lots will decrease as the walkout continues. Dealers will likely lose the incentives manufacturers pay them to increase sales by lowering prices.

And consumers could make the situation worse by panic buying.

Many analysts think it will be several weeks before dealership lots start to look a little empty. Ford, General Motors and Stellantis stocked up on vehicles ahead of Thursday night’s strike, and the UAW decided to limit the walkout to just three factories – at least for now.

“The guys at the dealerships will tell you, ‘The UAW this and that,’ but their lots are now full of cars,” said Ivan Drury, director of research at Edmunds, an auto industry information provider. He estimates that at current inventory levels and the pace of vehicle sales, most car buyers shouldn’t notice much change for a few months.

Detroit Three vehicles sat in inventory an average of 52 days before being sold in August, compared to 31 days at the start of last year, according to Edmunds data.

The UAW began striking factories that made only a few vehicles: Ford Broncos and Rangers, Jeep Wranglers, Chevrolet mid-size pickup trucks, and GMC vans. Dealers have good stocks of them.

However, if the strike does not end soon, there could be shortages of certain makes and models – big sellers or vehicles already in shortage, such as the Chevrolet Silverado and Tahoe, GMC Sierra and Ford F-Series pickup trucks. . Automakers have factories in Mexico that could continue producing some models, provided they have a supply of parts.

Whether the supply of cars to Detroit’s Big Three will depend largely on how long the strike lasts and how quickly it spreads to other factories – rumors swirled Friday that additional factories could be added next week. next week – there are other factors.

Garrett Nelson, an auto analyst at CFRA Research, expects manufacturers to eliminate the incentives they pay dealers to increase sales. These incentives allow dealers to reduce their sticker prices and often target slower-selling models.

The biggest wild card could be consumer psychology – panic buying that would drive up prices.

“The impact on prices would be almost instantaneous,” says Nelson. “Dealers will say, ‘Look, we don’t know how many more vehicles we’re going to get.’ There could be some panic effect that could encourage consumers to make this purchase as soon as possible.”

As cars from Ford, GM and Fiat Chrysler’s successor Stellantis become harder to find, there will be a ripple effect. Consumers who need a vehicle would likely turn to non-union competitors like Toyota, Honda and Tesla, which could charge them more.

“You’ll start to see pricing being affected everywhere – not just new segments of the business,” says Drury. “Used car values, which have seen a slight decline from last year’s highs, may begin to recover” as consumers look for an affordable alternative to new vehicles.

Consumers who lease their vehicle and are reaching the end of their contract could be particularly vulnerable. Drury says leasing companies want their cars back when the used car market is booming and may not want to extend the lease.

Anyone currently buying a new, used or leased car will also be hit by higher interest rates. The average loan rate for a new car this week was 7.46%, and for a used car it was 8.06%, according to Bankrate.

High fares contribute to an increase in refusals from consumers wishing to purchase a ride. The Federal Reserve Bank of New York said this month that the auto loan denial rate is now 14.2%, the highest since the bank began tracking its figures in 2013, and rising by compared to 9.1% six months ago. (Refusals are also on the rise for mortgages, credit cards and other loans, as lenders back away from the growing number of people behind on payments. Household debt is rising.)

Car prices were rising long before autoworkers even raised the possibility of a strike. A chip shortage, disruptions in the global supply chain and high demand have driven up prices.

The average price of a new vehicle has increased from $39,919 in 2020 to $48,798 so far this year, according to Kelley Blue Book. Cheap cars have virtually disappeared and consumers are forced to take out longer and longer loans to limit their monthly payments. Used car prices rose sharply in 2021 and 2022, but fell slightly this year.

Prices are almost certain to rise even if the strike is quickly settled, because automakers’ labor costs will rise.

“It’s almost a foregone conclusion that the UAW will succeed in obtaining substantial wage increases,” says Patrick Anderson, founder of Anderson Economic Group, a research firm that does market analysis. “Part of this is just inflation, part of it is auto company profits, and part of it is the leverage the UAW has right now with short inventories and an economy that still has plenty of room to grow. people who want to buy cars.

The UAW is seeking a 36 percent wage increase over four years, along with other demands that would increase business spending. Ford, GM and Stellantis responded by proposing to raise wages by about half that amount.

UAW President Shawn Fain is sensitive to the perception that the union’s gains will come from consumers’ wallets. He points out that prices were rising before the strike and says labor represents only a fraction of the Big Three’s total costs.

“They could double our wages and not raise the price of cars and still make billions of dollars in profits,” he said during an online presentation to union members this week.

That’s enough to make many motorists consider skipping the lot and keeping their current car a little longer. Their bank accounts will be healthier without car payments.

“Keeping your car is not a bad thing,” said Drury, the Edmunds analyst. “It’s a lot more sustainable than you think.”