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Blog » Money Tips » 150,000 UAW Unions Strike – What It Means For Stock Market in Coming Weeks

150,000 UAW Unions Strike – What It Means For Stock Market in Coming Weeks

Posted on September 13th, 2023
detroit auto workers strike

As tensions rise between the United Auto Workers (UAW) union and the big three automakers – Ford, GM, and Stellantis – the possibility of a strike looms.

With 150,000 auto workers demanding a 40% raise and the big three countering with a mere 15%, the stage is set for a potentially devastating and prolonged strike that could have immense implications for new car prices and overall inflation in the US economy. This article will explore the potential consequences of a Detroit auto workers’ strike, the factors contributing to car price inflation, and what this ultimately means for American consumers.

Related: How This Will Impact Gas Prices in Late 2023

 

The Stakes of the Strike

The union is prepared to go on strike starting Friday, led by UAW President Sean Fain, demanding a substantial pay increase for the 150,000 auto workers they represent. With the UAW boasting an impressive strike fund of $825 million, workers have the financial backing to continue striking for up to three months if necessary. As a result, the big three automakers face a possible production loss of about 1.4 million cars, further exacerbating the existing supply-demand imbalance in the automotive industry.

Factors Contributing to New Car Price Inflation

The current price of a new car is at an all-time high, with an average cost of $48,000. A combination of factors has led to this massive markup in car prices, starting with the ongoing global semiconductor chip shortage. As a vital component in modern vehicles, the lack of these chips has hindered production and forced automakers to scale back or temporarily shut down their manufacturing plants.

Furthermore, the COVID-19 pandemic has dealt a major blow to global supply chains, causing significant delays in delivering necessary components to car manufacturers. This has resulted in increased costs that are inevitably passed on to the consumer. Dealers have capitalized on this supply and demand imbalance, charging markups above the manufacturers’ suggested prices, contributing to 16% of observed inflation in recent years.

Potential Impact of a Detroit Auto Workers’ Strike

Should the auto workers’ strike materialize, it’s expected to ripple effect on the automotive market and the broader US economy. The immediate consequences would be evident in new car prices. A strike would further reduce the availability of new vehicles, increasing the demand-supply gap and allowing dealers to charge even higher markups on new car prices.

Moreover, if the UAW workers successfully negotiate a substantial wage increase, there’s a strong possibility that these increased labor costs would be passed on to consumers, driving higher car prices. As a result, consumers may choose to hold on to their current vehicles for extended periods, further shrinking the new car market and inflating prices.

Additionally, the strike would have a broader impact on the US economy. With inflation already a significant concern, further increases in new car prices would only fuel the fire. Since high inflation can result in reduced consumer spending, increased borrowing costs, and potential job losses, the implications of a Detroit auto workers’ strike reach far beyond the automotive industry.

Conclusion

In summary, the potential strike of 150,000 Detroit auto workers is poised to have severe consequences for the US automotive market and the overall economy. The ongoing semiconductor chip shortage and lingering supply chain disruptions from the COVID-19 pandemic have already made car prices soar. A strike would only serve to exacerbate these challenges, contributing to higher new car prices and increased inflationary pressures on the economy as a whole.

It’s crucial for all stakeholders – the UAW, automakers, and government – to work together to find a solution that ensures fair wages for workers while mitigating the risk of an industry-disruptive strike. Inflation remains the most significant economic challenge faced today, and it’s essential for all parties to act responsibly and cooperatively to navigate this precarious situation. If we wish to prevent further escalation of inflation and protect the well-being of consumers and workers alike, Detroit must find a way to reach a consensus.

 

FAQ: The Detroit Auto Workers’ Strike

1. What current situation is between the UAW and the big three automakers?

Tensions are high between the United Auto Workers (UAW) union and the major automakers (Ford, GM, and Stellantis). The UAW demands a 40% pay raise for its 150,000 members, while the automakers have offered a mere 15% increase. This standoff has created a significant risk of a strike that could have far-reaching consequences.

2. Why is the UAW considering a strike?

The UAW is contemplating a strike to secure a substantial pay increase for its members. With negotiations at an impasse, the strike is seen as a way to leverage the union’s demands.

3. What is the financial capacity of the UAW to sustain a strike?

The UAW has a substantial strike fund of $825 million, which provides financial support for its members during a strike. This fund could potentially sustain a strike for up to three months, giving the union considerable bargaining power.

4. How could a strike affect the automotive industry?

A strike by auto workers could lead to a production loss of approximately 1.4 million cars. This would worsen the existing supply-demand imbalance in the automotive sector, potentially resulting in higher car prices and limited availability of new vehicles.

5. What factors have contributed to the inflation of new car prices?

Several factors have contributed to the inflation of new car prices, including the ongoing global semiconductor chip shortage. These chips are crucial components in modern vehicles, and their scarcity has disrupted production and increased costs. Additionally, the COVID-19 pandemic has disrupted global supply chains, causing delays in delivering components to car manufacturers. Dealers have capitalized on these imbalances, charging markups above manufacturers’ suggested prices, further driving up prices.

6. How might a strike impact new car prices?

A strike by auto workers could reduce the availability of new vehicles, exacerbating the demand-supply gap. Dealers might take advantage of this situation by charging even higher markups on new car prices.

7. Could a strike lead to higher car prices for consumers?

If the UAW succeeds in negotiating a substantial wage increase for its members, there is a strong possibility that these increased labor costs could be passed on to consumers, potentially driving car prices even higher.

8. What broader economic implications could a Detroit auto workers’ strike have?

A strike could have significant implications for the US economy. With inflation already a concern, further increases in new car prices could contribute to overall inflation. High inflation can result in reduced consumer spending, increased borrowing costs, and potential job losses, affecting various sectors beyond the automotive industry.

9. What is the importance of finding a resolution to this situation?

It is crucial for all stakeholders, including the UAW, automakers, and government, to work together to find a solution that ensures fair wages for workers while also mitigating the risk of an industry-disruptive strike. Inflation remains a significant economic challenge, and cooperation is essential to navigate this precarious situation.

10. What can be done to prevent further escalation and protect consumers and workers?

To prevent further escalation of inflation and safeguard the interests of consumers and workers, all parties involved, particularly in Detroit, must work towards a consensus addressing the concerns of the labor force and the automotive industry. Cooperation and responsible action are vital to achieving a balanced resolution.

Featured Image Credit: Photo by Tom Fisk; Pexels; Thank you!

Taylor Sohns MBA, CIMA®, CFP®

Taylor Sohns MBA, CIMA®, CFP®

Taylor Sohns is the Co-Founder at LifeGoal Investments. He received his MBA in Finance. He currently has his Certified Investment Management Analyst (CIMA) and a Certified Financial Planner (CFP). Taylor has spent decades on Wall Street helping create wealth.

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