By Ray Birch
LAWRENCEVILLE, Ga.—Will the United Auto Workers (UAW) strike slam the brakes on what appears to be a return to more normal used car values?
According to Black Book, a protracted strike, defined as one that lasts for months, could send used values climbing again. The UAW has been striking at targeted production facilities of each of the Big Three automakers, departing from the traditional practice of calling strikes against just one company as it seeks to put pressure on the supply chain.
The potential for used values to begin to climb again follows a month in which used values showed their second-largest monthly decline ever, according to Black Book’s Used Vehicle Retention Index. In August, the Index declined 5.2%.
Alex Yurchenko, chief data science officer at Black Book, told CUToday.info this auto workers strike may be different and longer than the UAW work stoppage in 2019.
“It all depends on how long this strike is going to be,” said Yurchenko. “The last one did not affect the used market much.”
Yurchenko said the major reasons used values did not climb when auto workers hit the picket lines four years ago was excessive inventory at the time and a short strike.
“I think the last strike was several weeks, but this one is different,” Yurchenko said.
The UAW is demanding a 40% pay hike, a 32-hour work week and an end to a tiered wage structure that pays newer workers less.
Through the Windshield
Alex Yurchenko
“If we start looking at months for this current strike, I think we will see an impact on the used market and prices will climb, at least in the short term,” Yurchenko said, citing the significant uncertainty surrounding the latest work stoppage. “The direction of wholesale prices in the last four months of this year largely depend on the possibility of and the longevity of the UAW strike.
“Last month, we observed the second-largest monthly drop in Black Book’s Seasonally Adjusted Retention Index since its inception in 2005, with the largest being during the first full month of the pandemic in April of 2020,” continued Yurchenko. “Prices in August declined across all segments and age buckets, with mainstream car segments and full-size SUVs declining the most.”
Not a Total Surprise
Yurchenko said the nearly record drop in the Index in August was not entirely a surprise.
“The large drop in wholesale prices in August was a continuation of what we've seen during the summer,” Yurchenko stated. “Last year the same thing happened in late Q3 and Q4. Prices were dropping higher than the normal seasonality rate.”
Yurchenko explained the used value decline in August was driven by higher inventory levels and the return of more manufacturer incentives.
“So, there was pressure from the new side,” he said. “Obviously inventory is not where we were pre-pandemic. But since last year inventory has been constantly increasing. From a consumer perspective there's more vehicles to choose from and better incentives than they've seen in the last several years.”
One Interesting Development
Yurchenko said what is interesting is used retail prices have not fallen like their wholesale counterparts, on which the Index is measured.
“We did not see any substantial decreases in used retail prices,” said Yurchenko, who believes the reason is dealers are keeping used stickers high as Americans become accustomed to inflated used values. “They are just not dropping those prices now.”
Yurchenko acknowledged a big decline in used values had been in the forecast.
“As I said, we were not totally surprised by the big drop in August, but we were expecting it for a little bit later in the year,” he said. “That's what we saw last year, mainly in Q4, where we had very steep drops. This year, I guess it started a little sooner.”
Still Well-Above Norm
Reiterating a long UAW strike could well dictate used values for the rest of the year, in the event of a short strike and very little impact on used values, a continuing drop in used values won’t come close to correcting inflated used values.
“Used values are still about what 40% above the pre-pandemic norm,” concluded Yurchenko. “Even with large drops in value, like we saw in August, wholesale used prices are still ridiculously high.”