Report: Auto Workers’ Strike Unlikely to Raise Car Prices

The United Auto Workers (UAW) went on strike for 46 days against Detroit’s Big Three automakers, winning increased wages, improved retirement benefits, an end to a 2-tiered wage structure that saw new employees make less than veteran workers, and more.

The agreements will raise new car prices, right?

Probably not, says a new report.

$950 Per Car, Says Ford

“Labor makes up only about 7% of the overall cost of building a car,” CNN reports. The cost of raw materials like steel, rubber, and aluminum plays a bigger role in the cost of new cars. So do the prices of the often 100 or more computer chips that power a modern car – as we learned last year when a global chip shortage sent new car prices soaring.

Related: Average New Car Price Rose 0.3% Last Month

According to Ford Chief Financial Officer John Lawler, labor, under the new contract, will cost an additional $950 per car. The average new car sold for just under $48,000 last month.

“The automakers will have difficulty passing those costs onto consumers,” Michelle Krebs, an analyst with Cox Automotive, told CNN. Cox Automotive is the parent company of Kelley Blue Book.

“Any additional labor costs are more likely to eat into automaker profits than they are to raise prices,” CNN Says. “Ford reported that it earned about $3,000 before interest and taxes for every gas or hybrid vehicle sold to consumers in the first nine months of the year.”

Lawler told the Detroit Free Press, “This is an increase in costs for us. This is something we’re going to have to work on. We’re going to have to find efficiencies throughout the system… to help mitigate the impacts of higher labor costs.”

Competition Has Rising Labor Costs, Too

The Big Three must also compete with non-unionized automakers and can’t afford to raise prices significantly without driving away customers.

The union’s action affects those competitors, too. Reuters reports that since the UAW announced tentative deals with the Big Three, Nissan, Hyundai, Honda, Toyota, and Subaru have all raised wages for their workers.

The raises may be an attempt to prevent non-union workers from organizing. The Wall Street Journal reports that, in the aftermath of the strike, the UAW has begun campaigns to sign up workers at both Honda and Subaru plants in the U.S.