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Joe Biden’s approach to climate change is negatively impacting the American auto industry and increasing reliance on China. This not only affects the economy and workers but also presents challenges for the Democratic party.
The United Auto Workers (UAW), including those from the “Big Three” car companies, are threatening to go on strike if an agreement is not reached by the Thursday midnight deadline. UAW President Shawn Fain has made demanding requests, including a 46% pay increase over four years, a shorter workweek, and improved benefits. While Fain has recently moderated his stance, a strike still seems likely.
This conflict between the auto manufacturers and UAW is a lose-lose situation for President Biden. A strike would be embarrassing for Biden, who has shown support for labor unions, as he recently expressed confidence in avoiding a strike. It would also harm Michigan’s economy, potentially affecting the Democrats’ prospects in a swing state that voted for Biden in the last election. Additionally, negotiating a substantial settlement to avoid a strike could raise concerns about inflation and higher wages, especially as the Federal Reserve plans to halt rate hikes.
BIDEN DOESN’T THINK AUTOWORKERS WILL STRIKE, AS DEADLINE LOOMS
However, Biden’s biggest challenge lies in his push for electric vehicles (EVs) and the impact it has on these negotiations. Biden recently proposed stringent emissions standards, aiming for 67% of all cars sold in the U.S. to be electric by 2032 (a significant increase from the previous mandate of 50% by 2030).
Here’s what Joe Biden hasn’t told the American public: China dominates the EV industry. China is now the world’s largest electric vehicle market, accounting for 60% of global sales.
The UAW understands that transitioning to EVs could lead to job losses and a reduction in their membership. Ford Motor has already acknowledged that producing EVs requires 40% less labor compared to traditional internal combustion engine vehicles. As a result, the UAW is demanding higher wages to compensate for potential job cuts.
On the other hand, automakers are concerned that meeting the UAW’s demands would harm their profitability, which is already under pressure due to the transition to EVs. They also worry that raising wages for union workers would make it even more challenging to compete with inexpensive EVs produced outside the U.S., particularly in China.
When Biden announced the new mileage efficiency standards, American automakers criticized them for being unreasonable and unachievable within the proposed timeframe. They argued that these measures could be met without significantly increasing vehicle costs, limiting consumer choices, or disadvantaging a large portion of the population. Currently, only about 7% of new cars sold in the U.S. are electric.
Furthermore, the demand for EVs in the U.S. has been lower than anticipated. Sales are increasing, but not as rapidly as expected. Inventories have grown, and some manufacturers, such as Tesla, have reduced prices and offered incentives to move their EVs off the lots.
As of June, EV inventories were 92,000 vehicles, a 350% increase from the same period a year earlier. According to a recent survey by Cox Automotive, the main reason consumers are not purchasing EVs is affordability. Even with subsidies and tax credits, most Americans cannot afford the average price of $55,000 for an all-electric vehicle.
Another challenge is the lack of charging infrastructure, which lags behind the increasing demand for EVs.
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A strike would severely impact the auto industry, adding to the economic challenges posed by the shift to EVs. While some auto companies have recorded significant profits, their EV businesses are not as profitable. Gas-powered cars are currently subsidizing their EV expansion efforts. Increasing wages for union members would undermine their profitability and make them vulnerable to non-union Tesla and cheap Chinese imports.
This threat is particularly real because China dominates the EV industry. China has become the world’s largest electric vehicle market, accounting for 60% of global sales. Chinese companies have increased production and secured necessary supplies like battery components. Due to early government support and subsidies, China has successful EV manufacturers that compete domestically and internationally. For example, China’s BYD sold nearly two million EVs last year, surpassing Tesla’s 1.3 million sales.
In Europe, there is a looming ban on gas-powered cars by 2035, further driving the shift to EVs. China-made vehicles are flooding the European market, with an expected 20% of EV sales in Europe coming from China by 2025. European automakers are struggling to maintain their market share and compete with Chinese imports, especially in the lower-priced car segment.
Recently, the head of BMW warned that European carmakers, particularly those producing lower-priced vehicles, would be engaged in a price war they are unlikely to win against Chinese rivals.
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The U.S. auto industry is the largest manufacturing sector, contributing approximately 3% to the GDP. While it is resilient, it cannot overcome skyrocketing costs. If costs continue to rise, the industry will become less profitable or shrink, losing to China’s competitive advantage. The White House and the entire country cannot afford to let this happen.
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