The issue of the automotive business is rather complication. Although new vehicle supply is increasing as a result of the attempts of replenishing supply chains, labor unrest is a threat to production and distribution. Domestic production and imports are interfered with by the recent UAW strikes and possible dockworker walkouts.

Automotive Industry Challenges and Labor Tensions

Such a complex strike between inventory and manufacturing divisions poses a special predicament to car makers, dealers and consumers. This is because it is essential to understand these dynamics in order to predict future vehicle availability and price in the U.S.

The supply of new cars in the current market is unparalleled and is going to be a contrast to the times of the pandemic, when their number was small. According to Cox Automotive data, the total number of unsold new vehicles in the United States was more than two million vehicles in early September, the last time this was reached was in April of 2021. At the beginning of September, the inventory was 2.06 million units, as compared to 1.96 million units in August.

Factors Behind Surplus and Market Dynamics

This excess can be attributed to several factors that have been affecting the manufacturing and demand across the world. The remaining impact of the COVID-19 pandemic that led to temporary stops in the production process and delayed delivery added to a backlog. Moreover, the increased demand of electric cars has been a catalyst in the production to gain a high percentage of this fast growing market.

The most crucial inventory measurement is days of supply, which in the beginning of September was 58 days, which was 46% higher than it was the year before. In the past, 60 days supply has been a normal and optimal supply implying that the market is balanced in regard to volume.

The sales activity demonstrates a strong consumer activity, and 1.1 million vehicles sold in the period of 30 days up to September 5, which is 16 percent higher than it was a year ago. In August, new vehicle sales increased by approximately 15 per cent which added to the seasonally adjusted annual rate of sales (SAAR) of 15 million units. With an increase in sales of its fleet this momentum shows there is an appetizing demand of new cars in spite of the looming labor issues.

The 2023 UAW Strike and Historical Context

With this spurt of supply, however, automakers are relying on it as an insurance against possible delays in production due to labor strike by the United Auto Workers (UAW). In the past, these strikes have upset the supply chain leading to bottlenecks and shortages.

On September 15, 2023, the UAW declared a stand up strike against all the Detroit Three automakers, General Motors, Ford, and Stellantis following the collapse of negotiations on a new four-year contract. It was the first time that all the three large domestic manufacturers were targeted simultaneously by the union. The strike was approximately six weeks as the walkouts were done in specific plants instead of a countrywide standoff, although it had downstream effects.

These dynamics are historically framed on previous UAW strikes. In 2019, a five-week strike by 49,000 members of General Motors shut down the company production to almost zero. The sale and inventory went down, yet production and sales regained following the strike.

In the 1998 strike of GM, a walkout in one of the parts suppliers and soon close-down of almost all assembly plants was the beginning of the strike. This made inventories to fall even as sales went down and then a post strike boom of production to re-form the stock as sales went up. These case studies reveal the direct and drastic effect of labor actions in the automotive manufacturing.

The UAW strike of 2023, though being of the same duration and the involvement of the same number of members, had its own peculiarities. The 2023 strike was targeted, which is why only 36% of Detroit Three production was impacted by October, unlike the past strikes, causing an even smaller production and sales reduction. This was in contrast to the more detailed shutdowns in previous strikes.

Interestingly, the level of inventory used in the 2023 strike was not the same as the previous trends. Although the inventory levels of the Detroit Three were the same as the months before the strike, it was rising at a slower pace when compared to other manufacturers. This unusual dynamic can probably be explained by the push of the auto industry to replenish stocks severely in 2021 and 2022 due to severe shortages of semiconductors and other supply disruptions, and the more diffused nature of the specified strike.

Risks and Long-Term Consequences of Labor Actions

Although automakers have tried to create a buffer, the use of an oversupply approach in negotiating labor has its risks and long-term effects in the industry and consumers. A successful strike that does not lead to immediate production is likely to have long-term effects on the new car market that affect model availability and prices.

Sluggish vehicle introductions are one of the risks. Manufacturers have carefully laid schedules on new model releases. Disruption of a strike may push such dates and that will create a ripple effect in the future releases and also leaves the consumers in the queue awaiting highly anticipated vehicles. This has the potential to destroy market cycles and hamper competitiveness.

Besides, an overall increase of cars can exist, though this increase may not be even across the board. Some niche vehicles or less demanded configurations could be in short supply and thus restrict the consumer choice and supply. This may cause frustration among consumers who will be unable to find their desired options at hand.

The principle of supply and demand is that in the long-term, the supply will be limited, and prices will be raised, no matter how much stock was originally held. The possible increase in the prices of new cars might render cars less accessible to the potential customers affecting their access and sales counts in the market. These price increases might also make it difficult to the Federal Reserve to deal with inflation.

Dealerships that have had longer holding periods of excess inventory put a serious financial burden on the dealerships hence their cash flow and operational effectiveness. This pressure can result in the closing down of dealerships or fewer services to the consumer, less access and support in the automotive retail environment.

A study conducted by Cars.com in week five of the UAW strike during its stand up strike showed the dwindling popularity of supplies of popular models with the consumers shifting their preference. The decline in inventory in September 15 to October 15 was a result of striking UAW workers in selected plants. An example is the decrease of Chevrolet Colorado and GMC Canyon truck supplies in GM Wentzville plant by 50.3 and 43 per cent respectively.

Shift in Consumer Behavior and Market Trends

On the same note, Ford Bronco stocks fell by 15 percent and Ranger pickup trucks stocks decreased by 45.3 percent at the Wayne Ford Michigan Assembly Plant. Stellantis Toledo experienced a 23.7% drop in the supply of Jeep Wrangler and an 11 percent decrease in the supply of Jeep Gladiator. The declines indicate that popular models can be affected by targeted strikes very fast even when inventory levels are high.

The consumer behavior was also affected by the strikes. A Cars.Com consumer survey was done between September 15 to September 25 and the results indicated that 77 percent of the respondents knew about the UAW strikes. Of these 15% took cars made by UAW labor off of their lists, and 8% took the cars or trucks made by UAW out of their lists.

The strikes stimulated the change to import brands, where 29% of the respondents thought of an import car. Surprisingly, union members themselves as well as the families responded differently: 31% favored the American brands, whereas 42% were looking at imports since the start of the strike.

Foreign Competition and Inventory Insights

Jenni Newman, the editor-in-chief of Cars.Com, implied that these changes could have increased the tendencies present in the market. The sales were already faster in foreign car makers such as Toyota, Honda, Subaru, Kia and Hyundai whereas their home brand was slower such as Dodge, Buick, Ram, Chrysler and Jeep. Newman argued that the strike could have increased the competitive advantage of foreign brands which were already there.

In spite of factory shutdowns, Cox Automotive said that inventory was not yet in shreds. Charlie Chesbrough, the senior economist at Cox Automotive noticed that Detroit automakers had inventories that could get them through to the next month. He also warned that the effect of the strike might deepen in case the strike is not withdrawn, and once again, the balance between the current inventory and the current production stoppage is very delicate.

There have been different degrees of preparedness by domestic automakers. An example is Stellantis, which had significant inventory, with the Dodge brand of 136 days, Chrysler at 125 days, Ram with 115 days and Jeep with 95 days. Such numbers are quite high compared to the industry average, which may give Stellantis greater leeway in case of a work stoppage and is likely a strategic decision in a move to be targeted by the UAW.

General Motors and Ford set up large inventories, in particular of their full-size trucks that were very profitable. The supply of the Ram 1500 was 107-days, Ford F-150 was 98-days, and Chevrolet Silverado and GMC Sierra were 81 and 79 days respectively. Such huge stocks protect the bottom line of automakers in the times of uncertainty.

All domestic brands did not have such reserves, however. Cadillac recorded the lowest inventory of 46 days then Chevrolet 52 days. The new-formatted Chevrolet Trax was of acute shortage, having 21 days to go. This gap reveals their weaknesses in the Detroit Three and it is some models that are more vulnerable to market changes due to production pauses.

The inventory dynamics of foreign automakers in which U.S. factory workers are not unionized and are not targets of UAW strikes are different. The typical Subaru and Lexus supply was about 30 days, whereas Honda, Toyota and Kia used to have about 30 days. Although they are slimmer than most local brands, they have another problem, as they do not depend on huge stockpiles but agile supply chain management.

Price Segments and the Rise of Electric Vehicles

Different vehicle price points have different inventory levels, which suggest the strategic attention of automakers. The vehicles in higher price categories such as the 77-day supply of the 60,000-80,000 category and 74-day supply of the 50,000-60,000 category have stronger supplies. This hoarding of stocks in high-end segments reflects a larger trend in the industry.

On the other hand, cheaper cars have constrained supplies. The below 20,000 segment was supplying 21 days and the supply was 35 days in the 20,000 to 30,000 segment. Such difference reveals that automakers are targeting more affluent consumers with better credit and cut down on cheaper models. This tendency may exacerbate the affordability of a great number of consumers.

The supply of EVs in the market is changing, as well. At the beginning of September, EVs holding unsold positions had a supply of 98 days, a little bit less than in the previous month but still higher than the industry average. The sales of EVs grew by 7% in the past 30 days, which decreased the supply of days but the inventory was not even.

As an example, the Chevy Bolt is an example of a non-Tesla EV bestseller that had less than a 30-day supply, one of the most constrained volume EVs. The new models that are popular such as Cadillac Lyriq and BMW i4 also had stock that was lower than average. The dealers of Hyundai, Subaru, Toyota and Volkswagen had EV inventory of between 80-100 days which are closer to average.

The upper end consists of EVs that have the highest inventory, which mainly include the luxury cars, made in Germany, and are mostly above the price of 100,000. Interestingly, above-average quantities of EVs were also stocked at Nissan dealers. This varied topography demonstrates that inventory issues and chances are divided in terms of brand plan, cost and market penetration.

The 2023 UAW strike had a massive economic impact across production lines. It is estimated that the production of domestic light motor vehicles decreased by 600,000 units in September and 1.8 million units in October due to the strike, which is measured at an annual rate. During the month of October alone, more than a third of Detroit Three production and sixth of domestic production had been lost.

Economic Impact and GDP Effects

The impacts continued despite temporary arrangements that were made and returning of striking workers. In December, Detroit Three production was below the level it had been in Q2 2023 before the strike, partly because of supply chain disruptions, particularly of tier 2 and tier 3 suppliers. It produced an estimated 1 million units not in November and December because of the delays in production ramp-up.

The strike also had an economic effect on the GDP of the country. It reduced the third quarter of that year’s annualized GDP growth by 0.1 percentage point and the fourth quarter by 0.5 percentage point. According to Mark Zandi, who is the chief economist at Moody Analytics, a six-week strike would cost the U.S. economy two-tenths percentage point of growth in three months until December.

It also had a weakened effect on sales which was not as severe as the effect on production. This is mostly because the Detroit Three were in an improved inventory position, as by the second quarter of 2023 (pre-strike), the company had 30 or so days of sales in inventory, 30 days prior to the strike.

Interestingly, the impact on the motor vehicle prices was not high as compared to the case of the past strikes where the prices of motor vehicles tended to increase. At the end of the strike, the prices of new and used motor vehicles were at slightly lower levels than it was in mid-September. This stability is, probably, due to the fact that the inventory levels did not drop during the 2023 strike, as it had been during 1998 and 2019.

The biggest short-term financial impact on employees was high wage increment in the new contracts. The UAW and the Detroit Three automakers entered into a contract that saw wage hikes of 25 percent throughout the duration of the contracts with an 11 percent pay hike to be implemented after the contracts were ratified. Such profits put pressure throughout the industry.

After the UAW -Detroit Three, non-unionized auto manufacturers such as Hyundai, Toyota, Honda, and Tesla have declared their own wage raise to factory staff in the U.S. and would come into effect next year. This implication had the ripple effect of making measures of wages at the sector level respond to the strike more than prices did. The wage increase in the motor vehicle industry has been faster than in manufacturing and the general private industries since October 2023, which is evidence in support of the strike.

Wider Economic and Labor Market Effects

The greater economic impact of a sustained strike is not limited to automakers. The Anderson Economic Group estimated that a 10-day strike, a shorter one, against all three automakers would still cost the U.S. economy a loss of $5.6 billion, comprising of direct wage losses by autoworkers (860 million dollars), lost production (1 billion dollars), and consumer and dealer losses (2 billion dollars). The impact of lost wages on the spending power of striking households has a direct effect on local economies because discretionary spending is decreased by workers.

Analysts are concerned that a long strike would cause furloughs and lower wages of employees further along the supply chain. Although the early expectations of a quick fix can keep the suppliers holding on to the employees, long term delay of the component supplies would ultimately lead to production delays and loss of jobs. A 4 week strike against all three car makers would cost 161, 000 lost jobs in Michigan alone and long term strike would cost the state more than 300, 000 jobs.

Another front of labor conflict has risen; a dockworkers strike on the East and Gulf coasts of the United States set in motion by an organization called International Longshoremen Association ( ILSA ) after they were unable to come to a new agreement with the US Maritime Alliance. Another major threat to the movement of goods, such as millions of vehicles imported into the country, is this work stoppage.

Dockworker Strikes and Global Supply Chain Risks

The impact of a long dockworker strike would be experienced in the entire economy of the U.S. especially in the automotive sector. The ports of such cities as New York, Baltimore, and Savannah are important entry points of imported cars. The demands made by the ILA involve a hefty 77% wage raise in a six-year contract and restrictions on automation in the ports, whereas the USMX has already responded by offering to raise wages by almost half and keeping the existing automation regulations.

Luckily, the short-term consequences of this dockworker strike can probably be curtailed due to the current abundance of inventory in the dealerships nationwide. The Cox Automotive figures of September show that there are over 2.84 million new cars in stock, which is an average of 77 days of stock of automobiles. This is way higher than the figures last year and even exceeds the 65 day supply which experts in the industry regard as healthy.

The dockworker strike is likely to impact most on the European carmakers, which significantly use the ports in the East Coast to access and distribute their vehicles. BMW, Mercedes-Benz, Volkswagen, and Volvo are the manufacturers that have large vehicle-processing and -distribution centers at ports, such as Baltimore that moved more than 847,000 cars and light trucks last year.

European Automakers and Regional Effects

Nonetheless, most of the European car manufacturers have a higher inventory level than average. BMW Company has supply of 88 days, Mercedes-Benz 100 days and Volvo has massive supply of 142 days. The Volkswagen core brand is healthy with supply of 66 days and 86 days in Audi luxury division. Such strong inventories ought to cushion against short term shortage brought about by port disruption.

The ports in the West Coast have been the ones that mostly deal with the traffic generated in Asia whereas as well automakers such as Toyota and Hyundai have East Coast ports where they have dealerships in the south. This diversification implies that even the brands that are not tied to Europe could be impacted. Toyota that ships vehicles to the shore at Jacksonville, Florida, to serve its dealerships in the south seems susceptible because it has a thin inventory.

The primary Toyota brand as well as its luxury arm Lexus had less than half the national mean supply with 35 and 30 days worth of their inventory. A Toyota spokesperson affirmed that the company was keeping a close eye on the situation and it was putting in place countermeasures to ensure that there is minimal effect on customers and dealers.

Future Outlook of the Automotive Industry

The automotive sector is at a serious crossroad as complicated issues are being experienced. The future of the market will be determined by balancing between strong inventory and labor demands. Continuous talks and labor strikes will affect the supply of vehicles, their prices, and the economy in general.

The consumers should be alert and adaptive. Although having sufficient stock will be somewhat reassuring, particular models and designs can be unavailable or more expensive because of local effects of strike and supply chain congestions. The industry will have to find its strength and flexibility to withstand unprecedented supply and systematic labor strike in the coming months.