US auto strike, if stretched, can push up car prices when inventories run thin

NEW YORK: Automobile sales in the US will not be hit immediately by the United Automobile Workers (UAW) strike as franchises have supplies that will last for another few weeks and only in the long run the impact would be felt when inventories run low and prices will start jumping consequently due to non availability of cars.

But automobile experts feel that the UAW strike could throw the car market into a turmoil all over again in the long run, affecting especially some product lines, if it spreads to other plants, especially those making engines and other critical components including electronic, media reports say.

Auto sales hadn't entirely recovered from the pandemic, but car shopping in the US could change once more. Dealerships are open as they are franchises and not owned by the automakers though they have their logos on their showrooms.

You will still be able to shop for cars, even at Ford, GM and Stellantis dealers. They're not going to shut down, as car dealerships are independent franchises that aren’t owned by the company whose logo is on the building, reports said .

Franchises will have cars to sell for a while. Most of them have vehicles on hand to sell for a few weeks yet, and the current strike plans will initially impact only some of their product lines, said Jonathan Smoke, chief economist for Cox Automotive.

The strike's impact will not be comparable to the Covid pandemic period which shut down the computer chip industry as shortages led to closure of the entire US auto industry in recent years, he said.

This is the first time in US history; union workers have struck work against all the three big automobile manufacturers - GM, Ford and Stellantis (Chrysler). The strike entered the fourth day without a resolution on the union's demands that their wages be hiked to 36 to 40 per cent corresponding to the wage hike of top executives as auto companies made 92 per cent profits equalling $250 billion.

They are also demanding 40 hour week pay for a 32 week work which seems inconceivable for the auto makers.

New car dealers also sell used cars and, even if the flow of new cars suddenly stops entirely, they will continue to do so. They also service cars, and their service operations will continue, as well, although parts supplies could be hampered. Unlike other countries like India, the used car market thrives in the US as most buyers prefer to buy renowned brands at cheaper prices , albeit used for years.

The auto workers strike hitting manufacturing facilities is not a big thing as the covid impact left auto dealers better prepared to deal with disruptions, said Scott Kunes, chief operating officer of Kunes Auto and RV Group, which owns more than 40 dealerships in the Midwest.

"We already started to take some action a few weeks ago, when it looked like the strike was pretty imminent,” Kunes said.

"We started to stock up on used vehicle inventory, especially in the domestic makes, and some of the hotter models."

Vehicles could get more expensive due to the strike on first sale, reports said. Not all automakers are facing the heat of the strike right now. Toyota, BMW, Hyundai, Nissan, Tesla, Volvo and Subaru, to name a few, are still producing cars, trucks and SUVs in the United States, as their workers are not unionised.

The Japanese and South Korean automakers always tended to have less vehicle inventory pile up than the Michigan-based automakers, Kunes said. This could lead to a tricky situation where domestic automakers feel the pricing pressures as inventories run low and their competitors may not have the vehicles ready to meet the demand.

As the strike is confined to five plants – Wayne, Michigan, Ohio, Toledo and Missouri - where the factories make only a few specific models, in the long run their prices could jump if the strike drags on for a long time, said Tyson Jominy, an industry analyst with JD Power. Still the prices are not expected to rise to the levels reached during the computer chip shortages but could be closer than expected in a worst case scenario.

Not all production will stop immediately, say automobile dealers.

At plants where workers aren’t striking work, production will presumably continue. The UAW strike is confined to three final assembly plants, where vehicles are built to be shipped to consumers. So the strike will only impact buyers shopping for those particular models, CNN said.

When car shoppers go looking for a Ford Bronco, a Jeep Wrangler or a GMC Canyon pickup, they should probably get to the dealership soon before inventories start to get really thin in a few weeks, reports said.

The UAW strikes could become more "disruptive" if the call extends to plants building engines and transmissions. Work could continue for a while at final assembly plants but, before long, production would be impacted by a lack of major components coming from factories that have been shut down, said Thomas Goldsby, professor of supply chain management at the University of Tennessee.

These companies also import a few of their models from European and Asian factories that aren’t impacted at all by strikes in the US, such as GM’s Chevrolet Trailblazer, made in South Korea, and Stellantis’s Italian-built Dodge Hornet.

As Covid period slowed down manufacturing, car buyers turned to direct factory-ordering their new vehicles rather than pickup from whatever was available on the dealer’s lots. That’s good for both the buyers and the automakers as the former virtually gets a custom built car and the automaker is manufacturing an already sold car. That way there is no waiting line.

As of now pickup truck inventories are well-stocked, said Jominy, but they will run down if the strikes go on for a long time. Truck buyers are usually brand loyal and they will wait it out rather than shop for competitive models like the Toyota Tundra or Nissan Frontier.

Before the strike, auto dealerships were reasonably well stocked with healthy inventories of new vehicles, according to Michelle Krebs, an analyst with AutoTrader. That’s good, as it means they’ll still have vehicles to sell for a few weeks, but, as the strike wears on, the car buyer's choice will dwindle. You may have the car you want to buy but not the colour you want.

Eventually, 2023 as it approaches the year end with Christmas just three months away could be another difficult year for the auto industry.

The year 2022 was challenging for the world's major automakers, as supply chain disruptions made it hard to produce enough vehicles to meet demand. The disruptions are now easing and dealers should have more cars to sell. But with recessionary fears lurking will consumers buy without profit-eroding discounts?