The Two Ways The UAW Strike Could Affect Car Prices, Per An Industry Expert

Remember when buying cars used to be fun? Alright, maybe fun is the wrong word, but it wasn’t that long ago when prices were reasonable, vendors were plentiful, funds were conventional, and everything was as predictable as overnight oats. Now though, funding car-purchases has only grown weirder and more difficult, more retailers have either merged or closed up shop, and the ongoing UAW strike is halting the production of several made-in-America vehicles. Will the strike eventually lead to higher used car prices as more new vehicle shoppers turn to the used market? One expert says it might not.

Matt’s put me in charge of today’s Morning Dump, and I realized at about 8:30 a.m. that I haven’t written a massive car market update in a while. Well, that changes today, so fasten your seatbelts and get ready for some bite-sized news about buying and selling cars.

Used Pickup Truck Values Are Up, But Used Car Prices Should Remain Stable

You know what’s expensive these days? Gasoline. Although we’ve certainly come a long way in the past few months, there’s a chance prices may never drop to pre-pandemic levels. You know what else is expensive? Used pickup trucks. According to the Manheim Used Vehicle Value Index, wholesale prices on those things are up 0.7 percent year-over-year. That doesn’t sound hugely impressive until you realize that every other major market segment saw year-over-year value declines, with vans seeing the lowest drop of 2.3 percent and compact cars seeing the largest decline of 9.9 percent.

So, will the UAW strike and interruption of new domestic vehicle supply leave us finishing 2023 with strong used car prices, particularly as full-size pickup trucks are among the hardest-hit new vehicles? Possibly, but don’t be surprised if we don’t see any massive changes in used car prices over the next few months. Chris Frey, senior manager of Economic and Industry Insights for Cox Automotive, has shared some educated thoughts on where the overall used car situation is going in a media release:

While there was a bit of an acceleration from August, we shouldn’t get ahead of ourselves heading into the late fall and winter period. We are at a crossroads for wholesale, mainly from concerns about the UAW strike’s potentially slowing new retail sales and moving buyers into the used market. We don’t see that happening just yet, as it always takes time for changes to work through the market. Two very different outcomes are possible. One is to see higher prices from an extended strike on new production also showing up at wholesale and then used retail. The second leads to very little change – a strike resolution leading to price declines at relatively normal rates, or simply pausing, thus the wholesale and used retail markets are minimally affected. While we have some modest changes built into our MUVVI forecast, we think the market mainly reflects balance at this point, relative to what we have been seeing for much of the last three years. We typically see only slight upward trends in wholesale values in the fourth quarter, which is why are forecasting our Used Vehicle Value Index to finish down 2.2% for the year.

If we end up finishing 2023 with used car wholesale values down 2.2 percent from last December, expect used car prices to basically stay where they are right now, a contrast to previous predictions of a 4.3 percent drop over the course of 2023. While this isn’t great news for used car affordability, it does offer a possible window of predictability. Welcome to the new abnormal, where cars just cost more both new and used. We certainly aren’t filling a supply hole of several million vehicles globally anytime soon, and people still need to get to work.

Still, It Could Be Worse

It’s easy to think of Canada as a relatively mild-mannered nation of winter weather-enjoyers, coffee addicts, and pop stars who’ve maybe grown a little too big for their heads. However, America’s northern neighbor has household debt exceeding its GDP, and this could be causing some wacky things in the car market. According to Automotive News Canada, more Canadians may be turning to home equity lines of credit, commonly known as HELOCs, to buy cars.

Data from Mortgage Professionals Canada (MPC), gathered from borrower surveys and current as of the end of 2022, found 18 per cent of Canadian respondents with a mortgage had accessed equity in the form of a HELOC.

The credit is most frequently used to fund renovations or other home improvement projects, said Cecely Roy, director of communications at the mortgage industry organization. But recent trends show more and more homeowners using HELOCs to make other types of large purchases.

At the end of 2022, 23 per cent of borrowers said they used funds from their HELOC for a large purchase such as a vehicle or education. This compared with 20 and 17 per cent of HELOC borrowers in mid-2022 and the end of 2021, respectively.

Well, using a HELOC to buy a car is certainly one option. With auto loan rates often sitting in the double digits, the possibility of lower rates through a HELOC may be enticing to some. However, HELOC rates are variable, meaning they could rise just as quickly as they could fall, and buying something that depreciates using funds tied to a variable interest rate doesn’t seem like the greatest idea. Then there’s the whole thing about temporarily trading away home equity for a car. Still, taking a step back for perspective won’t stop Canadians from playing with fire, will it?

Ferrari’s Late To The Crypto Game

Well, if this isn’t a blast from the recent past. Just as the Web 3.0 hype has been thoroughly drowned in the bathtub, Reuters reports that Ferrari will accept cryptocurrency in exchange for new cars in the American market. What year is it?

[Ferrari’s Chief Marketing and Commercial Officer Enrico] Galliera did not say how many cars Ferrari expected to sell through crypto. He said the company’s order portfolio was strong and fully booked well into 2025, but the company wanted to test this expanding universe.

“This will help us connect to people who are not necessarily our clients but might afford a Ferrari,” he said.

The Italian company, which sold 13,200 cars in 2022, with prices starting at over 200,000 euros ($211,000) and going up to 2 million euros, plans to extend the crypto scheme to Europe by the first quarter of next year and then to other regions where crypto is legally accepted.

Either Ferrari is late to the game on something the nouveau riche have been doing for years, or this is a proverbial canary in the coal mine. I’m just saying, being sold out of house-priced cars into 2025 yet still moving to accept questionable digital tokens doesn’t seem to bolster confidence in exotic car market growth, especially for a company that’s, um, particular with its clients like Ferrari.

Shift Is Officially Over

Remember Shift, the online used car retailer that went public via SPAC before getting bowled over in the used car boom and not-quite-bust over the past few years? Well, Automotive News reports that it’s officially filed for Chapter 11 bankruptcy protection.

Shift, which ran an online platform for buying and selling used vehicles, ceased operations at its last two physical locations in California on Friday, Oct. 6, the same day it announced it would file for bankruptcy.

Shift’s long-standing profitability issues, cash burn tied to technology investments it made in 2022 and a shrinking liquidity runway put the company in increasingly dire straits this year.

“Unfortunately, as Shift continued to expend its available cash on technology development, capital markets in early-mid 2023 tightened and focused on profitability over growth, according to Shift’s advisers, which, along with other factors impacting the industry, made it increasingly difficult to find capital to fund growth and operations absent immediate cash returns,” Shift Technologies CFO Jason Curtis said in a declaration filed in support of the Chapter 11 proceedings.

Gee, who’d have thought profitability would be an important part of running a publicly-traded business? Unfortunately, relying on continuous investment isn’t a great strategy in times of belt-tightening, and failing to stay afloat has consequences. With only 24 employees reportedly kept on board for bankruptcy protection guidance, 120 employees are now out of work, and everyone trying to buy a car through Shift has reportedly seen their deals terminated. It sucks to be left out in the cold because some people expected funding to keep rolling in, so I wish every former employee and everyone who tried to buy a car through Shift the best of luck picking up the pieces. With an expensive used car market and a cautious job market, it’s a tough situation to be in.

The Big Question

Maybe I’m being overly simplistic here, but selling used cars online doesn’t seem that complicated, mostly because it can’t be revolutionary. Unless a car doesn’t actually run or drive, I’d want to see and test drive a car before signing on the dotted line, especially since lots of damage can hide through the glass of a camera. Hell, if you stepped back ten feet from my 325i, you wouldn’t notice that the hood looks like it was glanced by birdshot, such is the extent of the stone chipping. Oh, and with high used car prices and a tightening financing market being the new normal, relying on younger buyers for digital sales feels like less of a safe bet.

So, how would you solve selling used cars online? Is it really just a matter of having a better, more proactive, more knowledgeable internet marketing department?

(Photo credits: “Car Dealership on Western Ave” by David Hilowitz is licensed under CC BY 2.0., Ram, yonkershonda licensed under CC BY-SA 2.0., Ferrari, Shift)

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