The United Auto Workers’ strike appears imminent as the Thursday deadline to reach a new contract agreement draws near. Although used car prices are falling, the strike calls into question the broader economic impact on auto pricing as the strikes threaten to disrupt productions for the Big Three automakers — Ford (F), General Motors (GM) and Stellantis (STLA). Referencing this morning’s CPI report, Yahoo Finance’s Josh Schafer explains how “simple supply and demand” will control pricing and sway the Federal Reserve’s next interest rate decision.
ALEXANDRA CANAL: Welcome back to “Yahoo Finance Live”. I’m Alexandra Canal, joined with Josh Schaeffer, Pras Subramanian. And like I said earlier, guys, it’s been a very busy day here at Yahoo Finance. We had the inflation report, and, Pras, I know that you had your eyes very closely focused on those new and used car prices.
PRAS SUBRAMANIAN: Yeah, watch those car prices. Usually every month you get that report out. Noticing that car prices are still moderating. New car prices are rising, but not as fast as they were before, and used car prices are falling continuously, down 6.6% month or year over year in August. So that’s a big deal there for used cars.
But there could be one thing that might trip that up, and that’s, like, Josh, you mentioned, the possible UAW strike potentially in a day and a half here. We’re seeing that big three make about half the cars in the US. If that goes offline, you might see less inventory at dealerships and higher prices for buyers.
JOSH SCHAEFFER: Yeah, Pras, I was working on a story today just about the overall economic impact we could expect if that strike does happen. Again, that might happen tomorrow at midnight, and it’s interesting to just think about sort of the key levers that will be touched there and how far it could go if there were to be a strike. You’re talking about maybe a little bit of a drag on gross domestic product for the quarter, just overall production again. You’re talking about half of the cars made in America likely not being made at all.
But the most interesting part and what economists are most concerned about, actually, would be car prices going back up, because it’s kind of simple supply and demand at some point, right? If we don’t make any cars for an extended period of time, if this strike were to go on for, say, a month and you don’t have a lot of supply coming in, prices probably go up, as we’re talking about right now.
What are car prices a big part of? Inflation. Who cares about inflation? The Federal Reserve. So we care about it because we care about the stock market. Like, it could really extrapolate to some extent if it were to go that far. The strike hasn’t even started yet, but if it were to go that far, it’s interesting to think about what car prices going up because of the strike could do.
ALEXANDRA CANAL: Yeah, that was a nice little lesson on the economy there, Professor Josh.
JOSH SCHAEFFER: Supply and demand.
ALEXANDRA CANAL: Supply and demand.
JOSH SCHAEFFER: I took econ 101.
ALEXANDRA CANAL: I love it. I love it.
JOSH SCHAEFFER: I won’t tell you my grade.
ALEXANDRA CANAL: I can tell. But in terms of that supply, you know, I know we have somewhat recovered since COVID, but it still feels like that supply is very squeezed. I was recently looking at used car prices, and the pricing is still very high, and I think about the affordability of it all, especially with, you know, interest rates still high. Federal Reserve, they could very well hike again before the end of the year, so I think that’s a factor in all of this as well. How much are people even willing to pay on these cars?
PRAS SUBRAMANIAN: You know, it’s funny you mentioned that, because we see these used car prices coming down for the last few months, but they’re still so elevated from pre-pandemic, so they have a long way to go to come back down. Interest rates are extremely high. I think Edmunds said yesterday that they’re at the highest they’ve ever seen them from 7.4%, something like that for your auto loan. I mean, that’s massive, right? So you’re absolutely right. The car sort of market is still in a weird spot post-pandemic, and you throw in this wrinkle of a UAW strike, it might just be skyrocketing prices again, and then again, what does the Fed do, right?
JOSH SCHAEFFER: Right.