The Impact of Expensive UAW-Detroit 3 Contracts on Consumers

U.S. auto workers’ win could be consumers’ loss. Their expensive contracts will likely intensify America’s affordability crisis.
The UAW’s new contracts with the Detroit 3 include record-high wage increases, restored cost-of-living adjustments, speedier paths to top wages and better 401(k) and pension plans. The agreements, if ratified by members, would be a triumph for workers and their families. Wage boosts hit 25 percent over the next four and a half years, compared with the 23 percent workers received over the past two decades.
But these contracts squeeze automakers.
Ford Motor Co., General Motors and Stellantis each said their best offers were on the table when the UAW continued to call for walkouts at some of their busiest plants. Ford cautioned that it could barely afford the contract it offered about a week before the deal was reached.
A consumer squeeze could be next. Ford estimates the new contract will increase its labor costs by $850 to $900 per vehicle, which could trickle down.
Consumers are already hard-pressed to find a new vehicle in an affordable price range. Many are delaying big purchases, such as vehicles, because of the rising cost of living, Jenni Newman, editor in chief at Cars Commerce, said at the Automotive News Retail Forum: Chicago last month.
New-vehicle interest rates reached 7.4 percent on average in the third quarter, according to Edmunds. Nearly 18 percent of consumers — an all-time high — financed a new vehicle with a monthly payment of $1,000 or more in the third quarter, Edmunds said. New-vehicle buyers paid $736 per month on average. Many customers are paying in cash to avoid high interest rates, dealers said at the forum.
Vehicle prices are high in part because many entry-level models have vanished from lineups. Automakers have narrowed their portfolios as they invest in electric vehicles. And many are counting on profits from moneymakers — high-end pickups and SUVs — to get them through the EV transition.
The Detroit 3 are facing pressures from surging labor costs, expensive EV battery technology, inflation and more. Still, if those pressures diminish sales, they will have a bigger set of problems. The trickle-down impact is natural, but automakers should make every effort to offer affordable vehicles for a variety of buyers.