Two years after the automotive industry survived the supply-chain upheaval caused by the pandemic, a new disruption looms – the potential strike by the United Auto Workers (UAW). This strike poses a threat to the production and distribution of new cars, and its impact could be far-reaching.
A UAW strike against one or more of Detroit’s Big Three – Ford Motor, General Motors, and Stellantis (which owns Chrysler, Jeep, and Ram) – would likely have a swift impact on the US economy, particularly in the Midwest. Furthermore, a prolonged strike could result in soaring car prices due to reduced availability of new vehicles. The combination of slower growth and higher prices could complicate matters for the Federal Reserve, which aims to combat inflation while sustaining job growth.
Mark Zandi, chief economist at Moody’s Analytics, commented, “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. 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. Of this, around $3.5 billion would be attributable to lost wages and production, while consumers would bear the remaining $2.1 billion by not being able to obtain necessary repairs and replacement parts, along with dealers and their employees.
Mr. Zandi stated that a six-week strike would have a “measurable but ultimately modest” effect on the overall gross domestic product, possibly resulting in a decline of two- to three-tenths of a percentage point. However, as economic headwinds such as rising interest rates, the resumption of student loan repayments, and a potential government shutdown in October persist, the damage would start to accumulate.
If the strike extended until the end of the year, Mr. Zandi warned, “that would be enough to push this economy close to the edge of a recession, given everything else that’s going on.”
In 2019, a 40-day strike against General Motors had limited economic effects. However, this time, inventories play a pivotal role. While domestic car inventories have increased since their record low in February 2022, they currently amount to less than a quarter of what they were in September 2019.
Patrick Anderson, the principal and chief executive of the Anderson Economic Group, highlighted this distinction, explaining, “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.’ That’s not the case in 2023.”
Additionally, a strike could have a cascading effect on the automotive supply chain. Gabriel Ehrlich, an economic forecaster at the University of Michigan, forecasted that the suppliers of the automakers – the businesses manufacturing brakes, headlights, and catalytic converters – would begin feeling the impact after approximately two weeks. The resulting reduction in employment by these suppliers would lead to a decrease in spending by the laid-off workers, further exacerbating the situation.
In Michigan, the auto industry continues to make a meaningful contribution to the economy, albeit slipping in prominence. An analysis by Mr. Ehrlich, assuming a six-week strike against a single automaker, projected a slowdown in payroll growth in the fourth quarter.
The impact of the strike may vary among individual automakers. Pat Ryan, the chief executive of Co-Pilot, a car-shopping app that tracks dealer inventories, stated that Stellantis, with its larger inventories, would be able to meet consumer demand for longer than Ford or General Motors. Nonetheless, according to Mr. Ryan, consumers can still expect higher prices for both new and used vehicles.
Ultimately, automakers will be able to compensate for lost production, and selling vehicles at higher prices, in addition to not paying wages during the strike, will provide some temporary relief. However, if automakers are compelled to halt the production of their most profitable and popular cars, which are already in short supply, challenges will intensify.
Mr. Ryan commented, “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.”
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