USA: Why could consumers drive up car prices with panic buying in the face of a workers’ strike?

2023-09-19 17:17:59

Car buyers are headed for a new round of sticker shock if the United Auto Workers strike doesn’t end soon, particularly for popular vehicles that are already in short supply.

The number of vehicles on dealer lots will decrease the longer the strike continues. Distributors are likely to lose the incentives they are paid by manufacturers to boost sales by lowering prices.

And consumers could make things worse with panic buying.

Many analysts believe it will be several weeks before dealer 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.

It is estimated that with current inventory levels and the pace of vehicle sales, most car buyers should not notice much change for a couple of months.

Detroit Three vehicles were in inventory an average of 52 days before being sold in August, up from 31 days early last year.

The UAW began striking factories that make only a few vehicles: Ford Broncos and Rangers, Jeep Wranglers, Chevrolet midsize pickup trucks, and GMC pickup trucks. Distributors have good inventories of them.

The union said it had “reasonably productive conversations” with Ford on Saturday, while Stellantis provided details about its most recent offer to the union.

Mark Stewart, chief operating officer for North America at Stellantis, also said his company has contingency plans to limit the impact on consumers, although he declined to give details about them.

“We really want to encourage customers: Don’t be afraid,” Stewart said, suggesting they check out the deals available at dealerships.

However, if the strike doesn’t end soon, there could be shortages of some makes and models: big sellers or vehicles that are already in short supply, such as Chevrolet Silverado and Tahoe trucks, GMC Sierra and Ford F-Series.

Automakers have plants in Mexico that could continue producing some models, as long as they have a supply of spare parts.

While auto supply from Detroit’s Big Three will largely depend on how long the strike lasts and how quickly it spreads to other plants (there were rumors on Friday that additional factories could be added next week), there are others. factors.

CFRA Research auto analyst Garrett Nelson expects manufacturers to eliminate incentives they pay dealers to boost sales. Those incentives allow dealers to reduce their sticker prices and are often targeted at 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,” says Nelson. “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 Fiat Chrysler’s successor Stellantis become harder to find, a domino effect will occur. Consumers who need a vehicle would likely turn to non-union competitors like Toyota, Honda and Tesla, who could charge them more.

“You will start to see prices being affected everywhere, and not just in the new segment of the business,” said one analyst.

“Used car values, which have been experiencing a slight decline from last year’s highs, could begin to rise again” as consumers look for an affordable alternative to new vehicles.

Consumers who lease their vehicle and are nearing the end of their term could be especially vulnerable. Drury says leasing companies want to get their cars back while the used car market is booming, and they might not be willing to extend the lease.

Anyone buying a new, used, or leased car right now will also be hit with higher interest rates. The average rate for a new car loan this week was 7.46%, and for a used car, it was 8.06%, according to Bankrate.

High fares are contributing to an increase in rejections by consumers looking to purchase a trip.

The Federal Reserve Bank of New York said this month that the auto loan rejection rate is now 14.2%, the highest since the bank began tracking numbers in 2013 and up from 9.1% ago. six months.

(Dejections for mortgages, credit cards and other loans are also increasing, as lenders retreat from the growing number of people falling behind on their payments. Household debt is rising.)

Car prices were rising long before workers in the sector even raised the possibility of a strike. Chip shortages, global supply chain disruptions and strong demand drove prices up.

The average price of a new vehicle jumped from $39,919 in 2020 to $48,798 so far this year, according to Kelley Blue Book. Cheap cars have virtually disappeared and consumers are forced to take out longer and longer loans to limit their monthly payments. Used car prices rose sharply 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 achieve substantial wage increases,” says Patrick Anderson, founder of Anderson Economic Group, a research firm that performs market analysis.

“Part of that is simply due to inflation, part of it is due to the profits of the automakers, and part of it is due to the influence that the UAW has right now with a short inventory and an economy that still has a lot of money. people who want to buy cars.”

What do UAW workers want?

The UAW is asking for a 36% wage increase over four years, in addition to other demands that would increase company expenses. On Saturday, Stellantis detailed its latest offer of cumulative increases of nearly 21% in hourly wages, roughly in line with proposals from Ford and GM.

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

“Now that our automakers are enjoying strong profits, it’s time to do right by 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 achievements will come out of the pockets of consumers. He notes 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 and not raise car prices and still make billions of dollars in profits,” he said during an online presentation to union members this week.

All of this is enough to make many motorists consider avoiding the car dealership and keeping their current car for a while longer. Your bank accounts will be healthier without car payments. Holding on to your car for a while is not a bad thing.

Source: USA Today

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