Will the automotive industry strike impact car prices?

For about four weeks, the United Auto Workers (UAW) and the three largest vehicle manufacturers in Detroit (D3) have been in contract negotiations for higher wages, better benefits and improved cost-of-living adjustments for longstanding workers. Profits at these automakers have grown 92 percent from 2013 to 2022, but wages for workers haven’t reflected these gains.

The ongoing negotiations center on three main issues. For wages, the union members demand a 36 percent raise, down from the initial 40 percent ask. Current wages have not kept pace with inflation. Next is the reinstatement of cost-of-living adjustments. Employees benefited from these adjustments until the policy ended in 2009.

Finally, UAW demands removing the tiered employment system that prevents new workers from receiving the same benefits, including pensions, as longstanding workers.

UAW strike may chip away at market stability

As many car buyers remember, finding your dream vehicle was challenging following the pandemic due to ongoing supply chain issues. New vehicle availability fell to historic lows, which sent ripples across the used and leasing industry.

However, according to data from Cox Automotive, the total new-vehicle market inventory volume is up more than 60 percent compared to last year, with 53 days of supply. This is good news for buyers and decreases the potential for immediate high prices.

Still, if the strike continues into the fourth quarter and these strong inventory levels start to decline, there will likely be implications for the retail market. It may even impact the used market, similar to how supply chain issues created increased demand for used cars in 2020.

“If new-vehicle sales are insufficient for demand and cause prices to rise and or incentives to fall much in aggregate, demand could shift to used and drive up used values,” economist Jonathan Smoke wrote in a September Cox Automotive blog post.

Only some vehicles are directly impacted

The union strike is led by employees at key manufacturing plants operated by the Detroit three: General Motors, Ford and Stellantis. The strike targets the following popular vehicles:

But halting assembly impacts more than these specific models, explains Drury. If these vehicles’ availability continues to decline, demand will pass to top competitor vehicles. This demand could drive up the prices of that competing vehicle.

In extreme cases, “you could end up with a situation in which a non-UAW vehicle is now selling for more money,” shares Drury.

Prices aren’t rising yet

Historically, these types of strikes have led to quick negotiations and, thus, no lasting impacts in the automotive industry, according to Smoke. But that is not the case this time around.

The approach of the union members is to pressure automakers by stopping work at different locations rather than all at once, as outlined by UAW’s president, Shawn Fain, in a Facebook Live session.

While these work stoppages will lead to fewer vehicles being built, car buyers need not worry immediately. The deserted lots of the pandemic are in the past, and dealerships have fairly full lots — Smoke says dealers have “nearly 2 million new vehicles ready to sale.” This will keep drivers satisfied in the short term.

Drury explains that dealerships are not reacting immediately to fewer popular vehicles being produced.

Dealers “heard that they’re not going to be getting any more of these and that there’s going to be workers on strike, but they didn’t suddenly raise prices by like $5,000,” he says.

He explains that sellers aren’t reverting to last year’s lofty pricing because inventory has not reached low enough levels to force a price hike.

“You know, it’s just a threat right now. It’s just something that’s for tomorrow, but the pricing is for today,” he says.

These developments come at a time when shoppers could see the light at the end of the tunnel.

New car prices have been leveling out, and even as average transaction prices (ATP) remained high compared to pre-pandemic, they have been offset by growing incentives.

“Anything that stops that is just kind of like a blow to the face” for consumers, Drury says.

However, it is important to remember that any high prices seen at dealerships are not due solely to the UAW strike.

And while the union strikes may cause price impacts, this will not happen overnight. The COVID-19 pandemic impacted the entire auto industry, but a UAW strike only affects a portion of the retail business.