J.P.Morgan on Thursday said supply chain disruptions from a potential United Auto Workers (UAW) union strike would cut new vehicle production, drive up used car prices and put pressure on margins in the personal auto insurance business.
UAW is currently in talks with the Detroit Three automakers - Ford Motor (F.N), Chrysler parent company Stellantis (STLAM.MI) and General Motors (GM.N) - ahead of the expiration on Sept. 14 of the current four-year labor agreements covering 146,000 workers.
The automakers "represent about 40% of light vehicle auto sales (by units) in the U.S., and IHS Markit estimates that a strike would disrupt North American vehicle production by roughly 75%," J.P.Morgan said.
Higher used-car prices increase coverage limits on auto insurance, making claims more expensive, so insurers are obligated to pay the fair market value of a car if it is deemed destroyed, JPM lead analyst Jimmy Bhullar said.
The brokerage identifies Allstate Corp (ALL.N) and Progressive Corp (PGR.N) as the insurers with the most exposure to a potential UAW strike, with Allstate more susceptible due to its weaker capital position.
Used-car prices have had the most impact on auto margins in recent years compared to other factors such as higher spare part costs, labor costs, increased litigation, and severe accidents, the brokerage added.
A UAW strike that shuts down the Detroit Three automakers could cost the manufacturers, workers, suppliers and dealers more than $5 billion according to a study by Michigan-based Anderson Economic Group, a consulting firm.
