Gas prices are on the rise again and the economics of the car industry could be looking at a rough future

August 7 – The national average price for a gallon of gas was up $.11 from a week ago and $.30 from a month ago – and it looks like it will head to $4 a gallon soon. 

Oil prices hit a four-month high on Friday. 

Attorney Clint Barkdoll noted, “There’s a lot of reporting that Russia and Saudi Arabia have cut production once again, that’s certainly a big contributing factor to the price of oil on the world markets. There’s also incredible demand. Remember oil trades on a global market, it’s price globally. A lot of pockets around the world are seeing just insatiable demand. The refineries can’t crank out the oil and the gas fast enough. That’s just the classic supply and demand scenario. The only silver lining that I see in some of this reporting is that summer blend fuel, which is always more expensive, will soon start getting phased out as we get into Labor Day and beyond and that might ease some of the pressure on the gas prices.”

Interestingly, the car market in the United States could see a downshift in pricing because vehicles are on the way to being in over supply – there are too many for the demand. 

Barkdoll added, “That could be some good news for consumers. The other piece of those stories are the Big Three automakers, particularly Ford and GM, they are continuing to double down on hybrid manufacturing and EV manufacturing.”

Ford announced over the weekend that they’re going to continue to ramp up hybrid and electric vehicle manufacturing. 

Barkdoll continued, “That creates an interesting dynamic because to the extent there’s all these gas powered cars, of course still on the market, might you see those prices come down if the manufacturers are slowly fading them out of production? We know car prices have been a big driver of inflation over the last three or four years, so it’s finally some good news on that front.”

Add to that the fact that the United Auto Workers are demanding a 46 percent pay raise as part of a list of 10 demands workers are making to automakers, the automakers could be in quite some pain in the future.

Barkdoll said, “Their demand is they want a 20 percent raise upfront and then 4 percent per year for five years. So compounded that comes out to 46 percent. Now one of the interesting things the UAW is citing is that the CEOs and executives of those companies have had roughly 40 percent pay raises over the last three to four years and they want that matched for the workers. But what I’m troubled by is if you look at their demand, the UAW president was very clear that they will be prepared to go on strike if these terms are not met. Now, certainly there’s going to be negotiation, there has to be some back and forth, but that would be a huge obligation for the big three to absorb. I mean, if the union is going to stick to that 40% number.”

Michele Jansen of NewsTalk 103.7FM added, “We keep seeing how when you get certain contracts from the union, it tends to have that multiplier effect on others. This is a bad trend right now considering the downgrade by Fitch of the US economy, considering the threat of inflation, considering even the threat of a recession, which they keep saying we’re not in or we won’t be in but it feels like all the markers are telling us we’re headed that way.”

Barkdoll said, “It’s what I and other economists call the whipsaw effect. When you saw the UPS union make their recent deal, even here at the state level AFSCME makes its deal, as new contracts come up for renewal, those contracts that just got renewed become the benchmarks, the baselines for where the new negotiations will start. You’ll even see that spill down into other local unions, local teachers unions, for example, you’ll see this come up, other unions that represent municipal employees at the county level. So this is a major issue and that’s why if you’re an employer, small or large, this really affects you because these things have a way of spilling out into the general economy and what workers are expecting to be paid.”