Auto Industry Economists Weigh-In On UAW Strike

By Jeffrey Bellant September 16, 2023
GM dealers, are most at risk of low inventory issues with a protracted strike, especially Cadillac and Chevrolet, which are both tighter than the industry overall. GM dealers, are most at risk of low inventory issues with a protracted strike, especially Cadillac and Chevrolet, which are both tighter than the industry overall.

Detroit, Mi. Economists representing Cox and ADESA offered their initial thoughts on the Sept. 15 strike by the United Auto Workers at plants at each of the Detroit 3 manufacturers. Tom Kontos, ADESA chief economist, framed his comments around the used-car industry.“I view this similar to something like a chip shortage, because anything that constrains tends to be a tailwind to used cars values,” he said. “Of course, we don’t want strikes for the economy, as GDP suffers, the auto industry suffers and even used cars ultimately suffer, too, because if you’re not selling new cars, you’re not making tomorrow’s used cars.”

ADESA's chief economist, Tom Kontos. 

Kontos said in addition to fewer new cars leading to fewer future used cars, there is another effect on used car supply. “If you’re not selling new cars, then you’re not taking trades,” he said. Since, trades generate used-car supply that dealers can retail or wholesale, that cuts into supply. Jonathan Smoke, chief economist for Cox Automotive offered his comments about the strike on the Cox website. “Work stoppages ultimately lead to fewer vehicles built and lower inventory for auto retailers at the core U.S. brands. The (Detroit 3) represent 40% of the U.S. market in 2023 – General Motors is 17%, Ford 13%, and Stellantis 10%. There are 9 major auto brands across Ford, GM, and Stellantis, but the most important by volume are Chevrolet, Ford, Jeep, GMC, and RAM.

Smoke added: “GM sales are likely more vulnerable in a strike, as GM’s sales pace is stronger and supply more limited, so any disruption will be a negative. Stellantis sales, on the other hand, have been weak – so with abundant supply, their sales would likely not be impacted for a much longer period of time. Ford is in-between. Looking at data from our vAuto team, we see that the total new-vehicle market inventory volume is up more than 60% year over year right now, with 53 days’ supply.

Current days’ supply for the D3 brands.

GM dealers, clearly, are most at risk, especially Cadillac and Chevrolet, which are both tighter than the industry overall. However, even brands like Ford and Jeep have some model-level challenges. Ford only has 18 days’ supply of the popular Maverick pickup and 47 days of Broncos. Jeep only has 62 days of Grand Cherokees and 54 days of Wranglers. And Chevy dealers are likely worried about their 28 days of Tahoes. If production of one of those products is disrupted, dealers could see shortages within weeks. “Additionally,” Smoke wrote, “it is not clear what the impact to used car values will be at this point. Used wholesale and retail supply levels are already tight and have tightened further to start September thanks to strong retail sales momentum in August and into September. If new-vehicle sales are insufficient for demand and cause prices to rise and or incentives to fall much in aggregate, then demand could shift to used and drive up used values. The wholesale market is very dynamic, so we should see pricing changes in the wholesale market first.” 

Jonathan Smoke, chief economist for Cox Automotive.

Kontos comments echoed Smoke’s. Kontos reiterated his own thoughts that a tailwind for wholesale used car prices could occur if new-car supply dips. “Any uptick that we saw in the wholesale market the last few weeks, which we have seen, it could be sort of a hint at what might happen if there is a protracted strike,” Kontos said. He speculated whether the recent rise in wholesale prices resulted from dealers were concerned about a potential strike and decided to stock up. He compared it to consumers in Florida stocking up on water and supplies before a hurricane hits. 

Smoke added the question of inventory will be more of a concern in the long term than in the short term. “With nearly 2 million new vehicles ready to sale, most dealers have sufficient inventory to operate through September, and current UAW strike plans will impact only targeted product lines,” Smoke wrote. 

Kontos agreed that if it’s not a protracted strike, there might not be a significant inventory problem.

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Last modified on Tuesday, 26 September 2023 17:55