050: Navigating the Impact of an Auto Industry Wide Strike 09-27-23

What happens when a strike targets all three major automakers in the U.S. simultaneously? That's the question Megan Horneman, Chief Investment Officer for Verden's Capital Advisors, tackles in our in-depth discussion. She examines how the ongoing UAW strike - unlike previous strikes - is uniquely disruptive, and what this could mean for the economy. 

As Megan expertly navigates us through the potential impacts of this strike, she raises concerns about the potential ripple effects on the supply chain, particularly in the auto sector. She also speculates on the possible inflationary effects of agreements reached during negotiations, such as wage increases. However, she offers reassurance about one thing: the direct impact on GDP is not expected to be substantial. Megan's insightful commentary provides a critical look at the situation, shedding light on its implications for the economy.

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, coming to you today with our regular segment of Markets With Megan. We're going to talk a little bit differently today. Instead of economic data, let's talk a little bit about the UAW strike, which we're in the second week of. The UAW strike was not something that we knew would most likely occur. There's some things we know and things we don't know. At this time, there's just about 18,000 employees across three big automakers. The difference between this strike and what we've seen in the past is that the UAW is striking the major three automakers here in the US at the same time. Typically they go one by one, but this time they're striking all three. Recently they also added on some production facilities as well, as their demands haven't been met. There hasn't been a whole lot of room made yet in the negotiation, so the strike is going to continue.

The impact on economic growth though we just want to remind people that auto production in the US is not a huge portion of GDP, we don't anticipate it having a direct hit to GDP. The two impacts it can have is in, unfortunately, the supply chain, which we've just really started to improve since the pandemic, but with the production sites being closed down as well, we could have some impacts on the supply chain, specifically in the auto sector of the economy. The other thing that we just don't know at this point is what will end up happening, what negotiations, what agreements will be made. If there are big agreements on whether it's wage increases, we could see that it's got to come out somewhere and you could see some of these automakers have to increase the price of cars. We don't know that yet. We don't know what the final agreement will be made, but we do know that that could have another impact on inflation, not only from increased wages, but also now, increased autos. We're going to keep an eye on this.

The impact of GDP, the disruptions to the supply chain it all also depends on not only how long it goes on, but how many more production facilities that do get targeted. At this point, they're doing this slow and methodically because they do have a certain amount of money in the UAW fund in order to pay workers that are on strike. They're starting slowly. They started with some of the plants, now they're with the production facilities and we're waiting to see what may be the next steps that they take if there's no moves in the negotiations. We'll keep you posted on anything else that we find out about this and what it may mean for the economy. If you have any questions or comments, please feel free to reach out to podcasts at verdance. com. Thank you.