Car Prices Are Too High, But Don’t Blame The Autoworkers Strike

Good morning! It’s Tuesday, November 28, 2023, and this is The Morning Shift, your daily roundup of the top automotive headlines from around the world, in one place. Here are the important stories you need to know.

1st Gear: New Vehicles Are Too Expensive

About two weeks ago, the United Auto Workers union signed contracts with the Big Three automakers to end the strike and get vehicle production back up and running. Now new car sales across the country have rebounded ever so slightly.

However, many do not think those sales will gain any significant momentum going into the new year for one simple fact: new vehicles are way too expensive. From The Detroit Free Press:

According to S&P Global Mobility, November U.S. light vehicle sales are expected to recover from the strike-dampened sales levels of October, but they will lack any momentum for significant uptick. S&P Global Mobility projects 1.23 million vehicles will be sold in the United States this month, which would translate to a seasonally adjusted sales rate (SAAR) of 15.5 million units for the month, which is flat compared with the October SAAR level.

“While the end of the UAW strikes provides some potential relief to those automakers impacted, the ever-present affordability concerns remain prevalent for the foreseeable future,” said Chris Hopson, principal analyst at S&P Global Mobility, in a statement.

Hopson said over the next few months it is unlikely that auto sales will pick up from the current pace, “with the upshot being a bounce in early 2024 production creating a progression for inventory and incentive levels to develop come spring of 2024.”

A lack of affordability in the new car market is nothing new. It was an issue well before the UAW’s 46-day long strike that started on September 15.

“With high interest rates … nothing is going to unwind quickly,” Hopson said. “We can get some inventory in here, but interest rates are still high and inventory is still low based on what we saw at pre-COVID levels.”

At the end of October, there were about 2.1 million new vehicles in inventory across all automakers, up from 2 million at the end of September, Hopson said.

Cox Automotive data showed that in October, with new-vehicle inventories on the rise despite the UAW strike, the average price paid for a new vehicle was $47,936, about $670 lower than the year-ago period, but well above pre-COVID-19 when it was about $36,000.

Despite the minor price dip from a year ago, rising interest rates make affordability impossible for many consumers. According to an October report by MarketWatch, the average auto loan interest rates across all credit profiles range from 5.07% to 14.18% for new cars and 7.09% to 21.38% for used cars.

It’s widely expected that the affordability issue of new cars is going to continue throughout 2024 and beyond. High prices and interest rates have reportedly caused about 10 percent of buyers who would typically buy a new vehicle to fall out of the market. They’re now either going for used vehicles or have dropped out completely.

2nd Gear: Tesla Beats Anti-Union Claims

The National Labor Relations Board dismissed claims that Tesla illegally fired employees working on Autopilot software at its Buffalo, New York gigafactory to end a union organization push. The complaint was originally filed in February by Workers United, a union looking to organize at the factory. From Reuters:

Workers United claimed that within days of announcing a union campaign earlier this year, Tesla fired dozens of workers from its Autopilot department. Tesla has said the firings were based on performance reviews and not tied to union activity.

The labor board official, however, found merit to two separate claims that Tesla maintained an unlawful rule on the acceptable use of technology in the workplace and solicited grievances from workers in an attempt to thwart support for the union, NLRB spokeswoman Kayla Blado said on Monday.

If Tesla does not settle those claims, the NLRB will issue a complaint against the company that will be heard by an administrative judge, Blado said.

The campaign in Buffalo is apparently part of a nationwide push to unionize Tesla shops. The effort has spurred a number of complaints filed with the labor board alleging illegal union busting.

The United Auto Workers (UAW) union, which recently won new contracts with the Detroit Three automakers, has said that it plans to aggressively organize U.S. auto plants operated by Tesla and other non-unionized companies. President Joe Biden said this month that he supported the union’s efforts to organize workers at Tesla and Toyota.

In April, an NLRB judge ruled that supervisors at a Tesla service center in Florida illegally barred workers from discussing pay and other working conditions and told them not to complain to higher-level managers.

Earlier this month, a U.S. appeals court reversed an NLRB decision that said Tesla violated federal labor law by barring workers at its Fremont, California, assembly plant from wearing UAW T-shirts.

And the same court is separately considering Tesla’s appeal of an NLRB ruling that said CEO Elon Musk violated federal labor law by tweeting in 2018 that employees would lose stock options if they joined a union.

It won’t come as much of a surprise to learn that Tesla denied any wrongdoing in all of those cases.

3rd Gear: Cruise Spending Cuts

General Motors is cutting back spending in its self-driving vehicle unit Cruise following a pedestrian crash in October. From Reuters:

In October, one of Cruise’s driverless cabs was not able to stop in time from hitting a pedestrian who had been struck by a hit-and-run driver, raising safety concerns around the use of robotaxis.

Cruise in November paused all supervised and manual car trips in the United States while also expanding a safety review of its robotaxis, causing tumult within the company and compelling CEO Kyle Vogt and Chief Product Officer Daniel Kan to step down.

Last week, Cruise said it was planning to relaunch in one city before expanding to others. It also said it would focus on its Bolt-based autonomous vehicles in the near future.

4th Gear: Toyota Cutting Stake in Denso

Toyota and two other affiliates are planning to sell about a 10 percent state in automotive supplier Denso by the end of 2023. It’s a stake that’s likely to be worth about $4.7 billion. From Reuters:

The sale of shares in Denso would mark the latest step by the world’s top selling automaker to cash in on stakes in affiliates as it ramps up production of fully electric vehicles, a capital-intensive endeavour that spans research and development to an overhaul of the factory floor.

Toyota, Toyota Industries and Aisin will sell Denso shares worth a total of about 700 billion yen ($4.7 billion) at current market prices, the two sources said.

Toyota Motor’s portion of the sale will represent short of half of the roughly 10%, with Toyota Industries and Aisin making up the remainder, the sources added. Denso, a key Toyota supplier, is the world’s second-largest maker of automotive components.

Denso is planning to buy back some of its own shares in the open market to keep its share price from dipping too much.

In a statement, Denso said it was considering a share sale, a buyback and other capital measures, but that nothing had yet been decided. A Toyota spokesperson said the company was not in a position to comment on Denso, while a Toyota Industries spokesperson said nothing had been decided. Aisin said reports of the share sale were not something it had announced itself.

At $4.7 billion, it would be the second-biggest such share offering in Japan this year, after the more than $9 billion sale of shares in Japan Post Bank in March, according to LSEG data.

It would also be the biggest share offering in the auto industry in more than a decade, highlighting the stakes involved in the pivot to battery electrics.

Toyota, which held about 24.2 percent of Denso stock at the end of September, is still expected to be a top shareholder in the company.

Reverse: More Interesting Than F1