The traditional auto industry is doomed

A new one will take its place, but it'll look very different.

"Edit -1-5" by Dane Van, CC BY 2.0

President Biden recently made history by being the first sitting President to join a picket line, meeting striking UAW workers near Detroit. Biden’s rival, Donald Trump, attempted to match Biden’s move by visiting a non-union auto parts plant, but was largely ignored and mocked by the union leadership. This probably solidifies Biden’s image as a champion of the Rust Belt and the forgotten working class.

The UAW strike — which includes demands for 40% higher wages and a shift to a 32-hour workweek — is part of a more general labor revival in the U.S. A wave of major strikes is spreading across the country, including Hollywood writers and actors, airline pilots at American and Delta, UPS delivery workers, Las Vegas service workers, and possibly healthcare workers at Kaiser Permanente. So far, the strike activity in 2023 has already reached levels that haven’t prevailed since the 1980s:

Source: Labor Department

The labor revival has the support not just of the Biden Administration, but of the American people; unions are more popular than they’ve been in decades.

Source: Gallup

This was probably a long time in coming. With disasters like the Great Recession and Covid behind us and wage competition from China much reduced, a pushback is now possible against high inequality and corporations’ increasing share of the economic pie. And the tight labor market of the post-pandemic period provides a perfect opportunity for unions to flex their muscle. Even some economists are cheering for labor now.

In many industries — especially local service industries where the threat of foreign competition is low — I expect this movement to make some real gains. But in the case of the UAW, I think the strike is ultimately going to run up against even more powerful forces that severely limit its effectiveness. The auto industry is in the middle of a wrenching change like nothing it’s ever seen since its creation over a century ago — the switch from internal combustion cars to battery-powered electrics.

That change is necessary and even inevitable, but it’s going to make life a lot more difficult for unionized auto workers in the U.S. Even if the UAW wins on all their demands, the shift to electrics is going to reduce the importance of traditional heavily unionized industry clusters like Detroit, and will transform the nature of auto manufacturing itself. How flexibly U.S. institutions — the car companies, the government, and labor itself — can respond to these changes will determine whether union-friendly states can avoid a new miniature version of the Rust Belt.

The internal combustion doom loop

The first thing to understand — the essential background to this whole conversation — is that electric vehicles are simply going to triumph in the marketplace. And this is something that’s going to happen in just the next couple of decades.