Why UAW strike puts GM most at risk — and Toyota in position to win

TOYATA ALREADY IS GLOBAL CAR MAKER #1

Jamie L. LaReau, Detroit Free Press
Updated Tue, September 26, 2023 

The UAW's strike against the Detroit car companies could position Japanese automakers to capture more U.S. market share as the strike — combined with high interest rates — puts affordability for domestic new vehicles out of reach for many consumers, economists say.

And of the Detroit Three automakers, General Motors is the most at risk for damage to its sales this year from a prolonged strike.

GM, Ford Motor Co. and Stellantis are expected to release third-quarter sales results next week amid the ongoing United Auto Workers strike. So far, the targeted strike is limited enough in its scope to not have a big impact on Detroit carmakers' sales yet, Cox Automotive Chief Economist Jonathan Smoke and senior economist and Cox's senior director of industry automotive Charlie Chesbrough said Tuesday.


But if the strike expands to more plants and persists into the fall, the supply of new vehicles — already tight — will shrink even more. If demand for cars remains steady, then it means "increasing prices in both the new market and the used market," Smoke said during a news media briefing.

Smoke said the Japanese brands are in the best position to benefit from the strike's fallout, especially Toyota, because its supply problems have resolved and it is now increasing vehicle production. Also, the Asian automakers' lineups tend to be lower-priced sedans and smaller SUVs compared with the Detroit Three's higher-priced big pickups and SUVs, making not only availability, but affordability attractive to consumers.

"The Stand Up Strike tactic that the UAW has decided to use really minimized initial disruption and is part of the reason why we haven’t seen much of an impact so far, but now the scope is expanding," Smoke said. "The approach that (the union is) taking could enable a much longer disruption. I don’t think it’s out of the question to envision a disruption that could last well into the fall. Ultimately, it’s a function of time that will determine how much of an impact we will see on the aggregate level of sales, supply and pricing."

UAW hitting all angles

UAW President Shawn Fain declared a strike when labor talks failed at 11:59 p.m. Sept. 14, the time the union's current contract expired.

In what the union dubs a Stand Up Strike, Fain announced the first wave of targeted plants the union would strike as: Ford Michigan Assembly Plant (Final Assembly and Paint only) in Wayne, Stellantis Toledo Assembly Complex in Ohio and GM's Wentzville Assembly in Missouri. On Friday, Fain expanded the strike to 38 parts distribution sites across the nation belonging to GM and Stellantis, saying the two companies have not made progress in negotiations.


So far, parts suppliers have felt the most collateral damage with some having to lay off hundreds of workers due to a lack of work at the closed facilities on strike. Many suppliers are worried about the solvency of their business if the strike persists. All three automakers, too, have had to lay off thousands connected to the striking facilities.

The strike comes right as consumers started seeing some income gains and interest rates level off from a peak high in the spring. July pricing data showed the smallest year-over-year price increase in the last decade with average transaction prices down 2.7%, or $1,335, the largest January to July drop in the last decade, Kelley Blue Book data showed. The average transaction price of a new vehicle in July was $48,334, about $199 higher than it was in the year-ago period.

Cox data shows that only about half of all U.S. households can afford a $400-a-month car payment and while the consumer has been unscathed by the strike so far, that could change with the UAW targeting the parts distribution centers, Smoke and Chesbrough said. Those facilities feed car parts to dealers for customer service work.

"Stellantis and GM have seen a lot of gains in fleet this year as has Ford, so if there is a prolonged strike they could cut back on fleet sales" to make inventory last a little longer for consumers, Chesbrough said. "That might explain why the UAW went after the parts distribution centers, because they knew the automakers could pull back on fleet sales and this would also impact retail sales. But prices are going to suffer as a result of this and we are going to see prices go up."

The impact coming next month

When the strike started, the U.S. auto industry had 800,000 more new vehicles in inventory than it did a year ago at this time, Smoke said. The Detroit Three represent 40% of all U.S. new vehicle sales, but their sales are weighted in pickups and SUVs and higher-priced vehicles than import brands, he said.

Collectively, most of the Detroit Three brands had more new vehicles in supply than the overall industry but, he said, “There are certain models that will act as a canary in the coal mine to tell you when indeed we might be seeing pricing dynamics starting to shift" such as Chevrolet vehicles in tight supply now and the Jeep Wrangler, which is made at Stellantis' Toledo Assembly plant.

Smoke said so far at GM at least, the union's strike targets have not hit the vehicles that would represent its “canary in the coal mine."

"We were worried about the Chevy Tahoe, but that factory was not targeted initially," Smoke said. "So it’s possible that this could get into November before it even shows up with the tightest supply manufacturer.”

Chesbrough said GM has the most at risk of the three because “they’ve been having a pretty good year” selling a lot of compact SUVs versus the other two that have been “floundering a bit. So GM doesn’t want any hiccups right now. So this strike is definitely a hiccup it didn’t need to have happen.”

GM is also planning several key launches of electric vehicles by year-end that are crucial to its long-term transition to selling all EVs. It is for that reason Wall Street is closely watching the strike impact with jitters.

Both agreed that if the strike lasts beyond Thanksgiving, the industry is likely to see a setback and a repeat of much of the dynamics of 2021 when the industry suffered a severe shortage of new vehicles due to the chips parts shortage. The lack of new car inventory hindered sales and inflated prices for new and used models.

"We are likely to start seeing the first signs of impact next month, in October, in the brands and vehicles with the tightest supply such as Chevrolet," Smoke said. "If it continues, it will cascade into the used market as well just as we saw in 2021."

But unlike in 2021 the risk of a severe supply/demand imbalance is mitigated because of high interest rates. This week, the average auto loan interest rates for new and used cars are at the highest levels in 23 years, Smoke said. The average new car loan interest rate is above 9.6% and for used it is above 14%, he said. That means if new or used car prices go too high, it will "simply choke off demand and calm everything down. As demand cools down, prices stop going up."

“Our hope is that everything will be solved this fall," Smoke said.

This story has been corrected to reflect the percentage of Detroit Three vehicles that make up U.S. new vehicle sales.

Contact Jamie L. LaReau: jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.

This article originally appeared on Detroit Free Press: UAW strike puts GM at risk, sets up Toyota, experts say: Here's why