8 ON YOUR SIDE: Autoworker strike could drive up car prices

Auto workers strike over car prices

FILE – The sticker price is displayed in the window of a 2023 Navigator sports utility vehicle at a Lincoln dealership on June 18, 2023 in Englewood, Colorado. (AP Photo/David Zalubowski, File)

By DAVID KOENIG AP business journalist

If the United Auto Workers strike doesn’t end soon, car buyers are in for a new round of sticker shock, especially on popular vehicles that are already in short supply.

The number of vehicles in dealer parking lots will decrease the longer the strike lasts. Dealers are likely to miss out on the incentives offered by manufacturers to boost sales by cutting prices.

And consumers could make the situation worse by panic buying.

Many analysts expect it will be several weeks before dealers’ lots start to look a little empty. Ford, General Motors and Stellantis built up vehicle inventories ahead of Thursday night’s strike, and the UAW decided to limit the strike to just three plants – at least for now.

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

According to Edmunds, Detroit Three vehicles spent an average of 52 days in inventory before being sold in August, up from 31 days at the start of last year.

The UAW began strikes at factories that make just a few vehicles – Ford Broncos and Rangers, Jeep Wranglers, midsize Chevrolet pickups and GMC vans. The dealers have good stocks of them.

The union said it had “fairly productive discussions” with Ford on Saturday, while Stellantis provided the union with details of its latest offer.

Mark Stewart, chief operating officer for North America at Stellantis, also said his company has contingency plans in place to limit the impact on consumers, but declined to provide details.

“We really want to encourage customers: Don’t be afraid,” Stewart said, while also suggesting they check out dealers’ offerings.

But if the strike isn’t ended soon, there could be shortages of some makes and models – top sellers or vehicles that are 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 could continue producing some models – as long as they have a spare parts supply.

While the delivery of cars from Detroit’s Big Three depends largely on how long the strike lasts and how quickly it spreads to other plants – there were rumors Friday that more factories could be added next week – there are other factors .

Garrett Nelson, an auto analyst at CFRA Research, expects manufacturers to eliminate the incentives they pay dealers to boost sales. These incentives allow dealers to lower their sticker prices and they 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,” Nelson says. “Dealers will say, ‘Look, we’re not sure how many additional vehicles we’re going to get.’ There could be some kind of panic effect that could lead consumers to make that purchase sooner rather than later.”

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

“You’ll find that pricing impacts everywhere – and not just at the new end of the business,” says Drury. “Used car values, which have fallen slightly from last year’s highs, could be rising again” as consumers look for an affordable alternative to new vehicles.

Consumers who are leasing their vehicle and nearing the end of the lease term may be particularly at risk. Drury says leasing companies want their cars back while the used car market is hot and may not be willing to renew the lease.

Anyone who buys a new, used or leased car now will also be affected by higher interest rates. The average interest rate on a new car loan this week was 7.46% and on a used car was 8.06%, according to Bankrate.

High rates are contributing to an increase in denials among consumers looking to purchase a ride. The Federal Reserve Bank of New York said this month that the car loan denial rate is now 14.2%, the highest since the bank began collecting data in 2013 and up from 9.1% six months ago. (Mortgages, credit cards and other loans are also being declined as lenders balk at the growing number of people defaulting on their payments. Household debt is rising.)

Car prices rose long before autoworkers even raised the possibility of a strike. A chip shortage, disruptions in the global supply chain and strong demand drove prices higher.

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

Even if the strike is resolved quickly, prices will almost certainly rise as automakers’ labor costs rise.

“It’s almost a foregone conclusion that the UAW will succeed in pushing through significant wage increases,” said Patrick Anderson, founder of the Anderson Economic Group, a research firm that conducts market analysis. “Part of it is simply due to inflation, part of it is due to automakers’ profits, and part of it is due to the impact that the UAW has right now with a tight inventory and an economy that is still over a lot “People who want to buy cars.”

The UAW is demanding a 36% wage increase over four years, as well as other demands that would increase costs for companies. On Saturday, Stellantis detailed its latest proposal for cumulative hourly wage increases of nearly 21%, roughly in line with proposals from Ford and GM.

Politicians have also pushed automakers to consider workers who gave up wages and benefits during the Great Recession to help their employers.

“Now that our automakers are generating solid profits, it is time to do the same with the same workers so the industry can emerge more united and competitive than ever before,” former President Barack Obama said in a statement Saturday.

UAW President Shawn Fain has a sense that the union’s profits will come from consumers’ wallets. He points out that prices rose before the strike and says labor costs are only a fraction of the Big Three’s total costs.

“You 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.

This is all enough to make many drivers think about avoiding the parking lot and keeping their current car for a while longer. Your bank accounts will be healthier without car payments.

“Holding on to your car is not a bad thing,” said Drury, the Edmunds analyst. “It’s much more durable than you think.”

(Copyright 2023 The Associated Press contributed to this report. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

Brian Ashcraft

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