Bernard Swiecki, research director at CAR, joins Yahoo Finance Live to discuss how the convoy protests are disrupting the auto industry

Video Transcript

ALEXIS CHRISTOFOROUS: The largest border crossing between the US and Canada is finally reopened after a six-day blockade by truckers protesting vaccine mandates and other COVID-related restrictions. But the shutdown is still being felt by the auto industry. Here with more is Bernard Swiecki, research director at the Michigan thinktank, Center for Automotive Research. Bernard, it's good to see you again. Look, the auto industry was already dealing with so many other crises, right? The semiconductor shortage, the pandemic labor shortages. How much do these protests really negatively impact the industry?

BERNARD SWIECKI: So yes, it is absolutely another cumulative crisis that you're adding onto the stack that you already mentioned of the various shortages and impacts that we have had. But for me, I think the bigger issue is not so much how much did this particular border crisis sort of add on to those. For me, it's kind of the flip side of the coin that's more interesting because normally, when you have a supply chain disruption like this was, essentially, you can get a lot of it back by building vehicles on overtime, picking up some of those production volumes, and recouping what you lost.

However, that's much harder to do when you're also dealing with the semiconductor shortage and all those other issues. So for me, it kind of gets you twice. One, it's additive to the crises, but two, the other crises prevent you from having a stronger recovery, as would normally be the case when you have this kind of disruption.

ALEXIS CHRISTOFOROUS: When you look inside the auto industry who was impacted more by those protests at the bridge? Was it the automakers? Was it the suppliers? Were they both evenly impacted?

BERNARD SWIECKI: I would expect the impact to be much larger on the suppliers, simply because they're already in a more vulnerable state. As a result of the pandemic and the semiconductor shortages, automakers have focused on producing expensive vehicles, high transaction values, and so some of them have had record financial results over the last couple of years.

And that hasn't been true for suppliers because their business is dependent on volume. So the fact that the industry is making more expensive vehicles hasn't really benefited them the way that it has the automakers. And so they're already in a more vulnerable position when a crisis like this hits in this current industry.

Now when you look at sort of the stratification of suppliers, this really affects them all because even if you're a supplier that's sort of on the American side, and you're supplying an American plant, you yourself have no disruption. You can ship all the parts you want tomorrow. However, just the fact that plant isn't producing is going to cost a whole lot of economic activity at all those supplying plants and related businesses throughout each of these communities.

ALEXIS CHRISTOFOROUS: I know that Ford and GM had some plants that were temporarily closed because of the situation at the bridge. Do you have any idea the status of those plants now?

BERNARD SWIECKI: Yes, and Ford as well as GM, but also we'd heard announcements from Toyota and Honda. And so-- and Stellantis as well. And so, you know, what I think is going to happen is initially, it's like throwing a pebble into a pond. The closures of these plants kind of started near the border area because that's where that supply was on the tightest timeline. There's no buffer, really, like there is in the outlying areas. And so the closures started near the border, and they kind of spread out the longer that this situation went.

And I expect that the openings, the reopenings of these plants are going to follow a very similar pattern, where the plants that are closest to the border can be resupplied the soonest when the border is open, but it'll take a longer time for the transportation system to deliver the components to the more outlying plants. You know, and I've seen reports of plants going down as far away as Kentucky. And by the end of it, it could have been even farther away.

ALEXIS CHRISTOFOROUS: Wow, there really is, like, this cascading effect. So we know it's been a familiar story, these tight inventories have-- and strong demand for cars, both used cars and new cars, continuing to send car prices to record highs. What can consumers expect? Springtime is a big time to buy cars. That's right around the corner. You know, what would your advice be to somebody who may be thinking about buying a new car, but doesn't have to buy a new car right now?

BERNARD SWIECKI: Well, I mean the business that I'm in, it kind of pains me to say it, but my advice would be if at all possible, wait. We do have record high transaction values well over $45,000 per unit. Now we've never been in this kind of territory. And yes, I think what gets lost in the conversation quite a bit is we talk a lot about the supply disruptions. And you don't produce as many vehicles, and so there are fewer available to buy, just as there have been for years-- well, for two years now as a result of the pandemic and semiconductor shortage.

So availability is limited already. It will be more limited. If this sort of a thing should come back, hopefully the six days that we had didn't impact those levels too much. But the other side of that, the one that I don't think gets enough attention, is just the cost because in a simple supply and demand scenario, scarcity drives up cost. And so consumers are already facing this record market.

And anything like this that should happen only makes those vehicles more expensive to buy. And we've seen consumers turn to a variety of solutions. You know, they're hanging on to their vehicles longer. They are financing vehicles now as long as seven to eight years, just to get those payments to be more manageable. But frankly, this situation is not going to be tenable forever. Eventually we're going to have to come to grips with the fact that we are pricing a good deal of the American people out of the automotive market all

ALEXIS CHRISTOFOROUS: All right, it's a fluid situation for sure. Bernard Swiecki, research director at the Center for Automotive Research, thanks so much for being here today.