Q&A of the Day – How Much the UAW Strike & Demands Could Raise Auto Prices
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
Social: @brianmuddradio
iHeartRadio: Use the Talkback feature – the microphone button on our station’s page in the iHeart app.
Today’s Entry: Submitted via talkback asking about the impact of the UAW strike and union demands on the future cost of vehicles.
Bottom Line: Today’s Q&A is a follow-up to yesterday’s Q&A which addressed the economic impact of the UAW strike. For most of us which don’t have a direct connection to the American auto companies, the UAW or the local communities where the strikes are taking place, today’s question is about what the most direct impact of all of this will be for most people. The cost of purchasing a vehicle. There are two ways in which the UAW’s actions will impact the price of vehicles they produce going forward. The impact of the lost production of striking workers and the added labor cost which will be factored into the price of future vehicles. Of course, there are currently more unknowns than knowns with what the exact impact will be based on the extent of the strike, the length of the strike, and the final price tag of a new collective bargaining agreement, but with that said...I do have a view of the possible and the likely.
The first and most immediate impact on auto prices due to the UAW strike will come in the form of inventory. As of today, with only about 9% of the union on strike for a matter of days, there hasn’t been an inventory impact which would drive the price of vehicles higher. Heading into the strike the three impacted automakers had produced inventory of 1.96 million vehicles on hand. That’s the equivalent of about three weeks' worth of worldwide supply before an inventory crunch might begin. With the first phase of the strike underway about 90% of daily production is occurring. In other words, what’s happening right now, the way it’s happening right now, could continue for a year without widespread shortages of vehicles that would send prices higher. The UAW seems to realize this which is why they’ve set a new deadline of noon on Friday for a new agreement to be in place or a second more aggressive phase of the strike will commence (though it’s unclear what exactly that means or would look like). That’s the current lay of the land. If UAW workers are off the job for the equivalent of three full weeks, the inventory of new cars will begin to dry up, which would send prices for the remaining vehicles higher. This would likely also have the effect of sending more consumers in need of a vehicle to non-unionized brands. The biggest price impact on vehicles would be in the used car space. There are too many variables to know just how big price hikes due to short term inventory shortages could be, however it could be similar to the pandemic induced shortages of a few years ago which drove prices 20%-25% higher. With that said, what’s most likely to occur in this instance is that consumers who could put off making a vehicle purchase, would likely choose to put it off until the vehicle of their choice is available and at a more reasonable price. What’s “a reasonable price” is not only subjective but it’s also a number that’s sure to be heading higher as well.
While attempting to nail down the price impact from potential supply shortages is complicated, the potential impact of the labor deal the UAW is demanding isn’t. If the UAW were to get the deal they’re currently demanding, Barrons has pegged the increase in per vehicle cost at $1,500. That’s an average across all model types. To date we’ve already seen the automakers effectively offer at least half of the increases demanded by the union. Based on those offers – let alone what the final figure ends up being – minimum increases of $750 per new vehicle manufactured by Ford, GM and Stellantis can be expected, with increases of $1,000 or more, most likely.
So yes, while the overall economic impact of the UAW strike is minimal, the direct cost to consumers who choose to purchase UAW manufactured vehicles will be noticeable. Especially against the backdrop of inflation driven increases which have led to the average price of one of these vehicles being 25% higher today than they were prior to the pandemic. The current strike, and the longer lasting effects of what come out of it, have the potential to create a share shift in vehicles away from those manufactured at union facilities. That’s often been a byproduct of previous UAW standoffs. That’s why a union which peaked with a membership of 1.5 million members in the 1970’s, is only a tenth of that size today.