Autoworkers want 40% raises. Analysts worry about higher car prices and competing with Tesla

• Workers at Ford, GM, and Stellantis are fighting the automakers for higher wages.
• The United Auto Workers union is targeting a 40% wage increase in its ongoing contract negotiations.
• That could ultimately result in higher car prices for consumers — especially for EVs.

Workers at Ford, GM, and Stellantis are fighting for 40% pay increases — but analysts worry that will drive up car prices and ultimately, make it harder for these auto giants to compete with Tesla.

The United Auto Workers union fight with Detroit’s Big Three carmakers is heating up. The union recently passed a strike authorization vote, and its looming deadline is September 14. The workers are asking for improved benefits, a reduced workweek, elimination of the compensation tier model they’ve been operating under, and substantial wage increases that, if agreed to, could mean costs eventually trickle down to buyers.

Pricing journey

Vehicle shoppers have been through a whirlwind over the past few years as the pandemic halted the global auto supply chain, sending inventory to record-low levels and prices for new and used cars to record-highs. Not only did automakers cash in from the panic, their dealers did, too.

Only recently are new vehicle prices starting to creep down as inventory builds on lots and dealers employ incentives to get cars in customers’ hands. July saw the smallest year-over-year increase in average transaction price (ATP) in a decade, less than 1%, per Kelley Blue Book.

For the brands with more days’ supply on their dealership lots, buyers might be able to find good deals.

Dealers are especially motivated to move cars now that they’re coming down from the period of ultra-high profits during COVID and are paying elevated floor plan costs to keep cars around. There is still plenty of new car demand, but it’s easing as interest rates and monthly payments hit unprecedented levels and consumers hold onto their vehicles for longer.

The wage challenge

But just as buyers might be seeing some relief on the pricing side, the UAW’s wage demands could throw a wrench into that.

Union workers are arguing that they deserve a greater slice of the pie after seeing those COVID-era profits line automaker pockets instead of theirs.

Yet experts say it’s possible automakers will try to recoup these increased expenses by passing some of the potential wage cost onto buyers, reversing any positive movement on the pricing front for shoppers.

The EV shift exacerbates this threat. These vehicles are already, on average, more costly upfront than gas-powered ones, and these automakers are betting their future livelihoods on electric. (Keep in mind, workers are also looking for job security even as their work inevitably changes with EVs.)

“If negotiations take place and some of these major proposals come through the billions of incremental annual costs will be damaging and ultimately increase the prices of EVs rolling out over the next 12 to 18 months to consumers,” Wedbush Securities analysts said in an August 30 note.

“This will be a major headwind on the cost front,” the analysts added. “With any $3k, $5k, $7k, etc added to the slew of vehicles coming out would result in demand churn in our opinion.”

Any gains made on Tesla could vanish

The Detroit auto companies have had something of an advantage over the past year as EV production scales and their vehicles qualify for federal tax credits more than many of the non-domestic car makers, based on rules about where the EVs can be built and more. Getting EV costs down via tax credits has incentivized some buyers to go for domestic EVs. That advantage could disappear if Ford, GM, and Stellantis choose to keep costs high — and it will most certainly impact their ability to stay competitive with Tesla.

Tesla has hit a nerve with its price cuts this year, forcing Ford to slash its prices, too.

The increase that workers are seeking would boost pay and benefits at the Detroit automakers from a combined $64 an hour to $150 an hour and raise labor costs by $80 million, per a Bloomberg estimate.

If Ford or the other Detroit companies see labor costs go up that much as a result of union negotiations, they may act as if there’s less room to budge on pricing, ultimately negating any marginal gains they might have made on Tesla.