Potential UAW strike presents a near-term headwind for auto insurers - JPM

Forward Industries

07/09/2023 12:32

By Reshma Rockie George
       Sept 7 (Reuters) - 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.

 (Reporting by Reshma Rockie George in Bengaluru, Editing by
Tasim Zahid)
 ((Reshma.George@thomsonreuters.com))