HERE’S WHAT’S HURTING U.S. AUTO SALES TODAY

The automotive market has experienced massive fluctuations and shifts in the past decade. Considering the widespread growth of electric and hybrid powered vehicles, as well as the ever-growing crossover and SUV craze, the U.S. automotive market has experienced a sort of renaissance. As manufacturers gauge their profit-to-cost ratios, cheaper models get left behind due to their low return.

This is not good news for the majority of buyers, as SUVs and crossovers generally cost more to own and operate, while EVs often price higher than gas vehicles. Not only are there becoming fewer affordable options, but the cheap models that remain on the market, including used options, receive price hikes year-round. Of course, there are numerous reasons for price hikes, including added premium features and equipment, supply shortages, market demand, and simple "New Car" exclusivity.

Besides explanations from spokespeople hired by big automotive manufacturers, factory workers have added undeniable stress to the automotive market in the form of a worker's strike. The latest in the UAW's push to be reasonably compensated saw a bitter six-week strike which dealt a hefty blow to the U.S. automotive market. The halt in productivity, as well as the bitter relations between workers and CEOs, has only enhanced the surge in prices.

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UAW Strike Puts Upward Pressure On The Market

The monumental walk-out conducted by approximately 150,000 workers in the GM, Ford, and Stellantis plants left a huge gap in productivity for the big three American automakers. The six-week affair effectively knee-capped the American brands, forcing them to raise compensation, pension funding, and cost-of-living wages, among other contract stipulations. While this may be good news for the workers involved, it will undoubtedly have a rippling effect on the automotive industry as a whole.

Automakers will be looking for areas to recover profits after settling the UAW strike demands. This could mean brand-wide price hikes, cut production of less profitable bargain models, and higher interest rates; all of which mean higher payments and a less forgiving market. The trickle-down effect of the historic strike of 2023 will likely be felt in the years to come, as the market, again, attempts to stabilize.

Strike Puts Pressure On All Brands

Even though the UAW set their crosshairs on the big three American brands, other manufacturers are feeling the pressure of competitive wages. As industry standards rise, competitors are forced to either meet these standards, or risk losing skilled workers to a manufacturer that will. This revolution could result in higher prices for all automakers, as they fight to keep productivity, and profit, flowing.

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Market Still Recovering From The Pandemic

Another historic moment in modern times took place in 2020 when Coronavirus gripped the planet. The global pandemic forced factories to close their doors in order to save lives, halting, or at least slowing, production for a period. This had a huge impact on the market, as average new and used car prices rose due to supply shortages, company profit losses, and a largely quarantined workforce.

Like the UAW strike, the disruptions in productivity ultimately impact the automaker's profit. If there's one thing we know about billion-dollar companies, it's that they don't like losing money. In order to make up for these losses, brands may put more focus on profitable models or premium trim options, leaving their cheaper offerings behind.

Leading Causes Of Rising Automotive Prices

• Limited supply
• Industry advancements including tech and features
• Manufacturing setbacks
• Corporate greed

Supply And Demand

The automotive industry isn't immune to product scarcity. There is no better example of its vulnerability than the semiconductor shortage that hobbled many automakers. The supply shortage initially drove prices up in 2022. Since then, prices dipped briefly in February 2023, only to surge soon after.

AAA's 2023 study reports a 4.7-percent increase in new car prices from 2022, while the average annual finance charge has doubled. Not only is it costing more to own a new car, but AAA also reports an increase in new car depreciation, meaning buyers are less likely to recover their losses should they decide to sell or trade in their vehicle in the future. The cost of ownership is also up over 13-percent from 2022, putting the side effects of inflation on full display.

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Experts Weigh In On The Future Of The American Automotive Market

With big brands making pushes toward hybrid and electric-powered vehicles, cheap gas models are expected to become rarer. Not only are brands axing their bargain options, they're pricing their crossover, SUV, and hybrid models competitively. While competitive prices are good news, these models still price higher than bargain gas sedans and smaller options, elevating the average market into a higher cost bracket.

The used car market has also seen surges in prices, leaving many average buyers struggling to find affordable means of transportation. Though sticker prices on used vehicles have moderated, the interest rates have climbed, making them ultimately more expensive to own. The average interest rate for a used car loan rose to 11.38-percent from 8.84-percent, while the average payment rose as well.

Used Car Loan Statistics

(Source: Experian Automotive)

This may be due to the lack of affordable new car options driving up the price of affordable used cars. It's simple supply and demand. Still, the American auto market has struggled to stabilize, owing the continued uncertainty to the pandemic, UAW strikes, supply shortages, profit gouging, and good ol' inflation.

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