June 22, 2024

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Automakers are on the hook for $1 billion in higher wages annually after the recent worker strike and will likely try to raise car prices to pay for it

2 min read

From generous pay and benefits to stronger job security, the United Auto Workers union won significant concessions in tentative settlements that have ended their strikes against Detroit’s three automakers.

Now, General Motors, Ford and Stellantis are facing sharply higher labor costs, estimated by some analysts at exceeding $1 billion per year, per company. The automakers will try to absorb those cost increases through expense reductions and efficiencies while still aiming to post strong enough profits to please Wall Street.

In addition, analysts say, the companies will likely try to offset their cost increases by raising vehicle prices for consumers. How much they’ll be able to do so, though, remains unclear. American auto buyers are already facing enormous price runups since the pandemic: The average new-car price has soared roughly 25% since the pandemic struck three years ago.

Customers might assume that nonunion automakers, like Toyota, Tesla or Hyundai-Kia, will now be able to price their vehicles well below what the Detroit automakers can. But history shows that the nonunion companies will eventually feel compelled to raise their factory wages, too, in their effort to ward off the UAW’s efforts to unionize their factories. As their own labor costs rise, they, too, would likely impose price increases.

At the same time, the breadth of competition means that while GM, Ford and Stellantis will seek to raise vehicle prices, it might prove difficult to make significant price hikes stick.

“I don’t think consumers will necessarily readily absorb all the price increases,” said Jonathan Smoke, chief economist for Cox Automotive. “We are bound to see continued growth in discounting, which has just started to recover as supplies improve.”

If approved by 146,000 union members, the settlements that ended the strikes mean that automakers will raise top assembly plant worker pay by more than 30% to around $42 an hour by the time new…

Tom Krisher, The Associated Press

2023-10-31 19:57:27

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