Car deals just came back, but they will dry up if auto workers go on strike

• The United Auto Workers union is mid-negotiations with the Detroit 3 auto companies.
• If a tentative agreement for a contract is not met next week, the union is likely to strike.

Car buyers searching for resurfaced deals could be in trouble if union workers for Ford, GM, and Stellantis go on strike next week.

After years of turbulence and rising vehicle prices, some aspects of car buying are just starting to become less stressful. Deals are on the rise again, especially for domestic brands, and options on dealer lots are finally more plentiful after Covid-related factory shutdowns and a global shortage of computer chips decimated vehicle availability for the last three years.

But a looming strike by the United Auto Workers could throw the market back into some disarray, automotive industry and manufacturing experts told Insider.

The union has been negotiating its next contract with the Detroit 3 auto companies for months, asking for better wages, cost of living adjustments, and more. But if an agreement isn't met by September 14, 150,000 union members will go on strike, costing the industry as much as $5 billion in 10 days.

Experts say a potential strike would mean sinking levels of inventory and fewer deals car buyers could get in the fourth quarter — especially if the strike goes on for a while.

What customers should look out for if there's a strike

The amount of vehicle supply at dealerships across the country this year has been interesting to watch. As some automakers race to recover from pandemic supply lows (in which they had very few cars on their dealership lots), inventory has been building back up.

In general, Ford, GM, and Stellantis brands have had some of the highest days' supply this year compared with their peers. Ford, GM, and Stellantis operated at 64, 50, and 74 days' supply, respectively, in August, according to Deutsche Bank.

That would typically mean buyers see deals and incentives to move some of that inventory. Stellantis, for instance, has had some of the highest incentives in the industry in recent months, averaging $3,134 per vehicle, according to Cox Automotive.

But those deals could dry up in the event of a strike.

Car buyers who thought they just got past the worst of the above-sticker price markups they saw at dealerships during the pandemic should think again — especially if they're planning to buy from one of the Detroit three carmakers. A strike would inevitably chip away at fall production and inventory levels, bringing back the sense of urgency some shoppers felt in the depths of the pandemic.

"We see risk of a UAW labor strike curtailing US vehicle production, potentially at all three Detroit automakers," Deutsche Bank analysts said in a note. "This could further reduce inventories and help boost pricing."

These effects won't be seen by shoppers overnight, though. Looking back at the last UAW strike at GM in 2019, there was a delay in impact on dealership inventory. GM was forced to shutter several non-union plants too, when supplies from union-represented factories stopped coming through, but even in the depths of the 40-day strike dealers said they had ample supply. It wasn't until the months leading up to the 2020 Covid pandemic that GM dealers started running low.

With that one-two punch fresh in some dealers' memories, there could be an impulse to ration existing supply that could play a role in how much dealers are willing to part with cars at a lower price.

"For the first few weeks of a strike, automakers would have adequate supplies for their dealers, however knowing that the chances of a short strike are slim, dealers won't be quick to turn over vehicles cheaply," Sam Fiorani, vice president of global vehicle forecasting at firm AutoForecast Solutions, told Insider. "Inventory will be strained if the strike were to run more than a month, which would take us into mid-October. A strike into November would all but eliminate the chances of year-end sales."

Will there be deals even if a strike is averted?

The short answer is no. "Counting on a pre-strike resolution is a risky bet," Fiorani said.

And even if automakers are stockpiling cars and there is no strike, any "excess inventory" is really not extra, given that inventory levels are still lower than they were pre-COVID.

"Unfortunately, the industry is already starting from a point below traditional inventory levels and the current stockpiles of vehicles would bring dealers closer to where they were pre-pandemic," Fiorani said.

The historical industry standard of two months' worth of supply on dealer lots has changed since 2020, when slim supplies fed hefty profits. Many car companies are now intentionally keeping the number of cars available low to try to maximize profits, which still suggests there wouldn't be blockbuster deals to be had.

"We could see less overtime in the latter part of the year to keep inventory levels below the traditional 60-day supply mark," Fiorani added — though the scramble for market share might eventually return, spurring dealers to return to their old ways.

That, too, will trickle down to the already-volatile used car market, CFRA financial research experts said in a recent note.

Buyers can ultimately expect companies like Toyota and Honda, and even Tesla, to cash in from the Detroit 3 dynamics.