A potential strike by the United Auto Workers (UAW) could significantly disrupt North American vehicle production and drive up used car prices, JPMorgan (NYSE:JPM) warned on Thursday. The current labor agreements covering 146,000 workers at Ford (NYSE:F), General Motors (NYSE:GM), and Stellantis (NYSE:STLA) are set to expire on September 14, with UAW President Shawn Fain warning of a strike if no deal is reached by the deadline.
The UAW's reform-minded stance under Fain's leadership has led industry observers to perceive a high risk of a strike. Ford, GM, and Stellantis account for approximately 40% of light vehicle auto sales in the U.S., and a potential strike could impact North American vehicle production by around 75%, according to JPMorgan.
Even if the UAW continues negotiations beyond the deadline, the lack of a deal and looming threat of a strike could discourage auto dealers from offering discounts on their existing inventory, thereby driving up vehicle prices. Despite a roughly 18% decline from their peak in January 2022, used car prices remain 37% above their pre-pandemic level of January 2020.
The higher used car values could also compel insurance companies to levy higher charges for coverage. JPMorgan analysts explained that insurers are obligated to pay the fair market value if a car is deemed totaled. Higher used car values increase repair costs as they raise the amount insurers are willing to spend on repairing a car.
The labor union is seeking a significant 46% pay raise over the four-year contract along with an array of additional benefits. These include a reduction of the workweek to 32 hours for 40 hours' worth of pay at Ford, GM, and Stellantis. The UAW rejected these automakers' latest offers last month.
On Thursday, stocks for Ford (NYSE:F), General Motors (NYSE:GM), and Stellantis (NYSE:STLA) saw slight decreases, with Ford down 0.91%, GM down 0.76%, and Stellantis down 0.39%.
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