Boston, MA – A United Auto Workers (UAW) strike that started this week against Detroit’s Big Three automakers could soon impact both new car inventory levels and prices paid by consumers at dealerships across the country.
With nearly 50,000 UAW members walking picket lines at over 50 plants in 9 states as of Wednesday, the work stoppage so far has been limited in scope. But UAW leadership is threatening to expand the strike on Friday if no progress is made in ongoing contract negotiations.
Industry experts say if the strike drags on and spreads to more assembly plants, new car shortages and price hikes seem inevitable down the road. But the potential timing and magnitude of any consumer impact depends on the strike’s duration and the outcome of the high-stakes labor talks.
“Right now there is still inventory on dealer lots. The union is pinpointing the Big Three domestics, but it’s not an overall shutdown yet,” said Robert O’Koniewski, executive vice president of the Massachusetts State Automobile Dealers Association. “So there’s going to be some time before the effects really hit consumers and dealers.”
O’Koniewski believes the supply chain disruptions and price effects likely won’t be felt for at least a few more weeks, unless the work stoppage expands dramatically right away.
“If this strike continues and grows throughout October, that’s when you could really see inventory shrink nationwide and prices start to go up in response,” he said.
The stakes are high for both the automakers and autoworkers embroiled in the high-profile contract dispute. The union is seeking to regain concessions made on wages, benefits and job security during industry bailouts over a decade ago. But with sales slowing and production costs rising, the car companies are pushing back hard to keep labor expenses in check.
Any wage or benefit increases resulting from the negotiations will inevitably get passed through to consumers in the form of higher vehicle prices, O’Koniewski noted.
“The union gave a lot of financial concessions to the manufacturers 15 to 16 years ago during the bankruptcies, and they’ve made more since,” he said. “Depending on the deal struck, you’re looking at significantly higher labor costs getting built into the cost of each new vehicle sold.”
Even if the strike ends quickly with minimal concessions to the union, consumers will likely end up paying regardless, according to industry analysts.
Jeff Schuster, president of global forecasting at LMC Automotive, said the automakers will need to make up lost profits from the strike. That profit recovery could come in part from raising new car prices.
“The strike will wind up being inflationary,” Schuster told the Detroit Free Press this week. “The costs are going to have to be recovered somewhere.”
As inventory levels fall in the coming weeks, experts say consumers and dealers will start feeling the production squeeze. That could eventually create an opening for foreign automakers operating non-union plants in the U.S. to grab market share from the Detroit Three.
O’Koniewski believes many consumers may shift their shopping to brands like Toyota, Honda and Volkswagen if prices spike or vehicle options dwindle at domestic dealerships.
“If supply constricts drastically at domestic dealers, you’re going to see more people turning to the international brands,” he said. “Their plants aren’t unionized, so they have lower labor costs and more flexibility to undercut pricing.”
Whether a prolonged strike shifts more sales to imported brands depends on how quickly the automakers can restart production after a settlement. But O’Koniewski sees opportunity for foreign brands if recovery lags.
“It would take time for domestic production to fully get back up to speed, especially on the truck side,” he said. “That situation would open the door for international companies to be more competitive and aggressive with incentives to acquire new customers.”
For now, both buyers and sellers of new cars are left playing the waiting game as the union strike continues with no end in sight.
Paul Clark, who owns a Chevrolet dealership outside Detroit, told the Wall Street Journal that the small supply of vehicles and parts will only last another week or so before shortages kick in.
“After that, then we’re in trouble,” Clark said.
Until a settlement is reached, industry experts say uncertainty will reign for both autoworkers and the car-buying public. But they stress that consumers are not likely to feel major pain for at least a few more weeks.
Beyond that though, the strike seems poised to impact both the options and prices paid by consumers in the world’s second largest automobile market.