With the UAW strike settled, the automotive industry is figuring out its impact across all sectors and in terms of vehicle supply and pricing.
On vehicle supply, there’s consensus that General Motors, Ford, and Stellantis will be able to make up for the hundreds of thousands of vehicles in lost production, although this might not be settled until the first quarter of 2024.
Regarding supply: “I don’t see much of an impact,” said Jonathan Smoke, chief economist for Cox Automotive, in an email exchange with Automotive Fleet. “We did have some declining or potentially missed orders in September and October by the Detroit 3, but presumably we’ll see increased deliveries in November and December, partially making up for the temporary disruption.”
New-Vehicle Inventory, Pricing
As the strike happened and concluded, vehicle supply was already on the rise: New-vehicle inventory volume reached 2.40 million at the start of November, higher by more than 900,000 units from one year ago and its highest level since March 2021, according to Cox Automotive.
Nonetheless, according to Cox, inventory remains 35% lower than in pre-pandemic 2019.
Pricing in the longer term, however, is a different story.
Ford said its new UAW contract will raise costs per vehicle by an average of $900 by 2028. GM said its contract will increase costs by an average of $500 per vehicle in 2024. How much those costs will translate to retail or fleet buyers is yet to be seen, as well as strike's effects on non-Detroit automakers.
“I do think that the labor agreements will contribute to ongoing inflation in vehicle costs,” Smoke wrote to AF. “We’re seeing other brands increase wages in response to the new contracts, so this isn’t limited to the Detroit 3. I don’t think that impacts supply per se, but affordability especially in retail will limit the long-run equilibrium level of production and sales.”
Smoke noted that the affordability issue primarily limits retail potential and generally favors growth in fleet over time.
Smoke contends that high vehicle prices will restrict the potential to reach a 17+ million SAAR (Seasonally Adjusted Annual Rate) in the foreseeable future. He believes that 16-16.5 million SAAR is more likely.
SAAR for November was near 15.3 million, up 1 million over last year’s pace but a slight decline from last month’s 15.5 million level, according to Cox Automotive.
While Smoke contends that new vehicle prices will fall in the short to medium term, as rising supply leads to higher incentives and a return to discounting, “Beyond two to three years, though, prices will keep rising,” he said.
An ancillary effect of the strike is on initiatives that don't hold the same profit margins as traditional ICE vehicles. Both Ford and GM are pushing off investments in EVs as consumer demand and charging infrastructure catch up to EV sales.
GM will also be cutting costs at Cruise, its autonomous technology unit, after regulators suspended Cruise's testing of driverless vehicles due to a crash last month.
Originally posted on Automotive Fleet