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Consumers face higher car prices, lower inventory if auto workers strike

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Consumers face higher car prices, lower inventory if auto workers strike

Sep 14, 2023 | 6:12 pm ET
By Casey Quinlan
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Consumers face higher car prices, lower inventory if auto workers strike
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Staff members keep vehicles clean at the North American International Auto Show in Detroit on Sept. 14, 2022. (Andrew Roth | Michigan Advance)

Ahead of a possible auto worker strike, economic experts and researchers say that the work stoppage could have far-reaching economic consequences for businesses and consumers. In addition to workers’ job losses, consumers could see higher prices for cars and depleted inventory. 

The United Auto Workers union, representing about 150,000 auto workers, plans to go on strike as soon as its contract expires at midnight Thursday if it does not reach a deal with the “Big Three” auto manufacturers, Ford, Stellantis, and General Motors. All workers could walk out — the UAW has not taken the option off the table — but  the union has said it plans on waves of strikes at targeted locations, a decision it will announce Thursday night. 

The union is seeking 32-hour work weeks, a 46% pay increase over four years and improved benefits, including pensions and paid time off, the Michigan Advance has reported. Union members also are demanding the right to strike over the closure of plants and the elimination of tiered workers. Tier 2 workers, who are newer, receive less pay and benefits than Tier 1 workers and also work more on electric vehicles that may not be covered by union contracts, according to MarketWatch, which some members argue hurts the effectiveness of the union.

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The union is seeking more security for its members as the auto industry continues to produce more electric vehicles.

“Given the EV transformations currently underway in the auto sector, the UAW will be looking to establish as much security as possible for its members. Top concerns include what labor demand will look like in the new EV landscape and how to ensure that wage gains keep pace with high inflation and record automaker profits,’’ according to a University of Michigan analysis.

Experts say the weight of any work stoppage is dependent upon the numbers of workers who walk off the job, their location and its duration. Meanwhile consumers could see higher prices for materials including steel and auto parts reflected in their car purchases and repairs.

Although negotiations have shown signs of progress, Shawn Fain, president of United Auto Workers, said the companies and the UAW are far apart on priorities such as pay increases, with the companies offering half or less than half than of what the union has proposed. 

President and CEO of Ford Motor Company Jim Farley stated Wednesday in a press release that “we are here and ready to reach a deal” and that he wishes to avoid a “disastrous outcome.” 

The last auto workers strike was in 2019, when 50,000 GM workers walked off the job for six weeks. General Motors lost $3.6 billion, Reuters reported.

The Anderson Economic Group, an economic research and market analysis group, has estimated that a 10-day strike by all of the 150,000 union members would total $5 billion in economic losses. If the strike affected only one automaker, the company would lose $325 million and the loss of direct wages would total $341 million. For every 2,000 employees on strike at one location, there could be up to $10 million in lost wages, which would be felt locally,, said Tyler Marie Theile, director of public policy and economic analysis at the Anderson Economic Group. The estimate does not factor in strike pay, unemployment benefits, or reputational damage to companies or the union in its assessment of the economic impact of a strike.

Auto workers on strike can receive $500 in union benefits. If the union decided to strike against all of three automakers, the payments would last about three months.

Michigan faces the greatest economic impact. A one or two week strike at Ford could result in the loss of 28,000 jobs, according to a University of Michigan estimate. Outside of Michigan, Kentucky, Ohio, Illinois, and Missouri would be affected by a Ford strike. Ohio and Indiana face a potential Stellantis strike and Indiana, Missouri, Ohio, New York, Texas, Tennessee, Kansas, and Kentucky, a General Motors strike.

Theile said Southern plants may see more of an impact than they did in 2019 because of the growth of auto manufacturing and assembly and battery manufacturing in the region if the walkout is lengthy. 

“The most important driving factor there is going to be is the number of UAW workers striking. Since in the South, UAW participation and representation is not as dense as it is up in the Midwest, we likely wouldn’t see quite a strong impact, at least early on,” Theile said. “If a strike were to become quite lengthy, many manufacturing and assembly facilities are shut down and 1st and 2nd tier suppliers are shut down, that’s going to start to have a rippling effect through the automotive industry. And facilities that are not on strike and not represented by the UAW will not be fully insulated from the economic impact.”

Ali Bustamante, deputy director of the worker power and economic security program at the Roosevelt Institute, a progressive think tank, said the expansion into Southern states has somewhat “hedged the impact of a strike” because there are both unionized and non-unionized shops. 

“By and large, the reason why so much of car manufacturing has moved to the South is because of historically low levels of union density,” Bustamante said. “The political and social conditions make it really difficult to get unions off the ground there as well.”

It’s also challenging to predict how a targeted strike would affect the economy overall when it’s unknown how halted production at some plants would affect work at other plants where workers are not on strike. Fain said the union’s targeted approach is meant to “create confusion.”

“It’s a little unclear to me how many locations would potentially operate as normal or as close to normal when other locations, that they may depend on, are shut down and striking. I do think that those targeted strikes are still going to have a really significant impact on the economy,” Theile said.

Bustamante added that the strike would also impact the steel industry and would add to pressures on car prices.

Theile agreed that consumers would feel the effects.

 “We have about 20% of the inventory that was on hand in 2019. The current conditions would affect dealers and consumers, possibly much stronger and much sooner,” Theile said.

But Bustamante said the Federal Reserve’s raising of interest rates is a far bigger contributor to the problem of car affordability, since rates for car loans have risen in the past year. 

Consumers face higher car prices, lower inventory if auto workers strike
UAW workers rally for a new contract at the labor organization’s Region 1 headquarters on Aug. 20, 2023. | UAW photo

Some economists have also argued that the UAW strike is a sign of a strong economy and say that long-term gains in labor organizing will lift up more workers. 

“Strong labor markets, fueled by large-scale public investments in the workers who keep our economy going, offer workers agency to stand up for better wages and working conditions and walk off the job when basic labor standards aren’t met,” stated Rakeen Mabud, chief economist at Groundwork Collaborative, a progressive economic advocacy nonprofit.

“ … A workforce that enjoys better working conditions, better pay, and increased worker agency adds up to a stronger economy for all of us.”

Bustamante said that if the UAW wins many of its demands, it will encourage more workers to organize.

“As long as economic conditions hold steady, the [UAW] does have disproportional leverage and again, more leverage than they’ve had in the past 50 years or so,” he said. It would certainly boost the [labor organizing] waves that we’re already seeing.”