An extended walkout by the United Auto Workers in a contract dispute could raise car prices and affect jobs at the companies’ suppliers.
Two years after the auto industry survived the supply-chain upheaval of the pandemic, another disruption — the prospective strike by the United Auto Workers — threatens to upend the production and distribution of new cars, and the impact could be wide-ranging.
A U.A.W. strike against one or more of Detroit’s Big Three — Ford Motor, General Motors and Stellantis, which owns Chrysler, Jeep and Ram — is likely to quickly affect the U.S. economy, particularly in the Midwest. And a prolonged strike, by crimping the availability of new vehicles, could lead to soaring car prices. The combination of slower growth and higher prices could complicate matters for the Federal Reserve, which has sought to bring down inflation while maintaining job growth.
“We’ve been counting on vehicle prices coming down, adding to the disinflation and taking pressure off the Fed so the Fed doesn’t have to keep on raising interest rates,” said Mark Zandi, chief economist at Moody’s Analytics. “This makes that much more difficult.”
According to an August report from the Anderson Economic Group, a 10-day strike against all three automakers would result in total economic losses of $5.6 billion. Around $3.5 billion of that would result from lost wages and production, with the remaining $2.1 billion borne by consumers, who wouldn’t be able to get necessary repairs and replacement parts, and by dealers and their employees.
Mr. Zandi said a six-week strike would have a “measurable but ultimately modest” effect on overall gross domestic product, perhaps a decline of two- or three-tenths of a percentage point. But he said damage would start to mount, given economic headwinds like rising interest rates, the return of student-loan repayments and a potential government shutdown in October.
If the strike lasted through the end of the year, Mr. Zandi said, “that would be enough to push this economy close to the edge of a recession, given everything else that’s going on.”
A 40-day strike against General Motors in 2019 had limited economic effects. One key difference this time is inventories. Total domestic car inventories, which includes new and used cars, have increased from a record low in February 2022 but are less than a quarter of what they were in September 2019.
“In 2019, General Motors could look at their inventory and say, ‘We can take a 10-day strike, and hardly anybody who wants one of our cars is going to be unable to get it,” said Patrick Anderson, the principal and chief executive of the Anderson Economic Group. “That’s not the case in 2023.”
A strike could also have a spillover effect on the automotive supply chain. Gabriel Ehrlich, an economic forecaster at the University of Michigan, said the automakers’ suppliers — the businesses that make brakes, headlights and catalytic converters — would begin to be felt after about two weeks, with employers cutting back on employment and, as a result, those laid-off workers reducing their own spending.
In Michigan, the auto industry has slipped in prominence but still contributes meaningfully to the economy. Mr. Ehrlich’s analysis, which assumes a six-week strike against just one automaker, forecasts a slowdown in payroll growth in the fourth quarter.
How the individual automakers weather the storm could vary. Stellantis will be able to satisfy consumer demand longer than Ford or General Motors because it has greater inventories, according to Pat Ryan, the chief executive of Co-Pilot, a car-shopping app that tracks the inventories of car dealers. The result will still be higher prices for consumers, Mr. Ryan said, for both used and new vehicles.
Ultimately, the automakers will be able to make up for lost production, and selling their vehicles at higher prices — in addition to not paying wages during the strike — will help for a time. But things will become more challenging if automakers are forced to stop making their most profitable and popular cars, which are already in short supply.
“If you’re a G.M. dealer or G.M., you’re going to feel a lot of pain if the Tahoe line shuts down,” Mr. Ryan said.
Source: Economy - nytimes.com
