Car buyers are headed for another round of sticker shock if the United Auto Workers strike doesn’t end soon, especially when it comes to popular cars that are already in short supply.
The number of vehicles on dealer lots will decrease the longer the strike lasts. Dealers will likely lose the incentives that manufacturers pay them to boost sales by lowering prices.
And consumers can make the situation worse by panic buying.
Many analysts think it will take several weeks for dealer lots to start looking a little empty. Ford, General Motors and Stellantis imposed vehicle inventories ahead of Thursday night’s strike, and the UAW decided to limit the strike 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 full of cars now,” says Ivan Drury, director of insights at Edmunds, a provider of auto industry information. He estimates that with current inventory levels and the pace of car sales, most car buyers won’t see much change in the coming months.
Detroit Three vehicles spent an average of 52 days in inventory before being sold in August, compared to 31 days early last year, according to Edmunds data.
The UAW began attacking factories that make only a few vehicles: Ford Broncos and Rangers, Jeep Wranglers, mid-size Chevrolet pickups and GMC vans. Dealers have good stocks of these.
The union said Saturday it had had “reasonably productive discussions” with Ford, while Stellantis provided details of its latest offer to the union.
Mark Stewart, Stellantis’ chief operating officer for North America, also said his company has contingency plans in place to limit the impact on consumers, although he declined to provide details.
“We really want to encourage customers, don’t be afraid,” Stewart said, suggesting they see the offers at dealerships.
However, if the strike isn’t ended soon, shortages could occur for some makes and models – big sellers or vehicles already in short supply, such as Chevrolet Silverado and Tahoe, GMC Sierra and Ford F-Series pickups. The car companies have factories in Mexico that can continue to produce some models – as long as they have a stock of parts.
While the supply of cars from Detroit’s Big Three will depend largely on how long the strike lasts and how quickly it spreads to other plants — there were rumors on Friday that additional plants could be added next week — there are other factors .
Garrett Nelson, an auto analyst for CFRA Research, expects manufacturers will eliminate the incentives they pay to dealers to boost sales. These incentives allow dealers to lower their sticker prices, and they often target slower-selling models.
The biggest wildcard could be consumer psychology: panic buying that would drive up prices.
“The impact on prices would be almost immediate,” Nelson said. “Dealers will say, ‘Look, we’re not sure how many additional vehicles we’re going to get.’ There could be a sort of panic effect that could encourage consumers to make that purchase sooner rather than later.”
As cars from Ford, GM and Stellantis, Fiat Chrysler’s successor, become harder to find, there will be a ripple effect. Consumers in need of a car are likely to turn to non-union competitors like Toyota, Honda and Tesla, which could charge them more.
“You’ll see prices being affected everywhere – not just on the new side of the business,” says Drury. “Used car values, which have fallen somewhat from last year’s highs, could start to rise again” as consumers look for an affordable alternative to new cars.
Consumers who lease their car and are nearing the end of the term may be particularly vulnerable. Drury says leasing companies want their cars back now that the used car market is hot, and may not be willing to renew leases.
Anyone who buys a new, used or lease car now also faces higher interest rates. According to Bankrate, the average rate for a new car loan this week was 7.46% and for a used car it was 8.06%.
High fares contribute to a spike in rejections of consumers wanting to purchase a ride. The Federal Reserve Bank of New York said this month that the rejection rate for auto loans now stands at 14.2%, the highest since the bank started tracking numbers in 2013 and up from 9.1% six months ago. (There are also more denials for mortgages, credit cards and other loans as lenders shy 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 strong demand pushed prices higher.
According to Kelley Blue Book, the average price for a new vehicle increased from $39,919 in 2020 to $48,798 this year. Cheap cars have all but disappeared and consumers are being forced to take out longer and longer loans to limit their monthly payments. Prices for used cars rose significantly in 2021 and 2022, but have fallen slightly this year.
Prices will almost certainly rise even if the strike is resolved quickly, because automakers’ labor costs will rise.
“It’s almost a foregone conclusion that the UAW will be successful in passing substantial wage increases,” said Patrick Anderson, the founder of Anderson Economic Group, a market research firm. “Some of that is simply due to inflation, some of that is due to the profits of the automakers, and some of that is due to the influence that the UAW now has with short inventory and an economy that is still has a lot to offer. people who want to buy cars.”
The UAW is asking for a 36% wage increase over four years, plus other demands that would increase costs for the companies. On Saturday, Stellantis announced its latest offer for cumulative increases of nearly 21% in hourly wages, roughly in line with proposals from Ford and GM.
Politicians have also urged automakers to consider workers who gave up wages and benefits to help their employers during the Great Recession.
“With our automakers making solid profits, it’s time to do what’s right for those same workers so the industry can emerge more united and competitive than ever,” former President Barack Obama said in a statement Saturday.
UAW President Shawn Fain is sensitive to the impression that the union’s profits will come from consumers’ pockets. He points out that prices were rising before the strike, and says labor represents a fraction of the Big Three’s total costs.
“They could double our wages without raising car prices and still make billions of dollars in profits,” he said during an online presentation to union members this week.
It’s all enough to make many drivers consider avoiding the parking lot and keeping their current car for a while. Their bank accounts will be healthier without car payments.
“It’s not a bad thing to hold on to your car,” said Drury, the Edmunds analyst. “It’s much more sustainable than you think.”