Auto suppliers face 'tremendous vulnerability' following UAW strike

Auto parts makers are breathing a sigh of relief. But there is much to figure out in the months ahead.

It's true that the industry avoided the worst-case scenario with the United Auto Workers' strike against the Detroit 3—a strike that would shut down every UAW-represented assembly plant or drag on for months. But avoiding the worst doesn't mean avoiding significant impact. And the financial ripple effects of the strike are likely to last for a while.

For some suppliers, the coming weeks and months could prove particularly difficult as they ramp production back up and grapple with reduced revenue and cash flow, experts said.

"The longer-term implication for suppliers is that this, unfortunately, is probably going to mean some suppliers probably aren't going to make it through," said Laurie Harbour, an industry analyst and CEO of Harbour Results Inc., during an Oct. 31 webinar. "Even though we ended the strike, there is tremendous vulnerability in the supply chain."

Cooper-Standard Automotive Inc. is among the rubber industry auto suppliers that have taken a hit from production stoppages that resulted from the strike, but noted during its third-quarter earnings call on Nov. 3 that the timing helped to alleviate some of the pain.

Jon Banas, Cooper-Standard executive vice president and chief financial officer, called impact of the UAW strike "minor" in the third quarter because the strike launched just about two weeks before the quarter ended.

"The way the strike rolled out, it impacted us, but to a minor extent—less than $5 million in revenue for September," Banas said. "With the continued escalations that grew over time, actually, as of Oct. 31, the impact on us was closer to about $30 million in lost revenue. And therefore $8 (million) to $10 million in EBITDA lost."

Moving forward, Cooper-Standard will continue to monitor the potential impact of the strike, particularly as production ramps up. As that happens, Banas said, Cooper-Standard will be ready to meet the return in demand.

"We continue to monitor the ramp back up and how that comes back online," Banas said. "... We have full labor in the plants, and we are ready to deliver product to our customers as soon as they are ready to take it."

Dana Inc., meanwhile, said sales declined $65 million in the third quarter because of the strike and anticipated a $185 million dropoff in October, though that estimate came before the UAW settled with General Motors and Stellantis.

For BRC Rubber & Plastics Inc., a midsized family-owned supplier of custom molded parts, the impact of the strike was stark.

Roughly 60 percent of the company's sales are Tier 1 direct, and the Detroit 3 are among the company's biggest clients. Since the strike, sales were down about 40 percent, according to Brad Chaffee, BRC vice president of sales and marketing. That made planning and communication key.

"BRC communicated regularly with its employees and remained committed to its most valued assets, stating that BRC would avoid layoffs if at all possible," Brad Chaffee told Rubber News. "BRC continued to build inventory during the strike and used diverted labor to address PMs and plant improvement projects."

Company CEO Chuck Chaffee said it did ask for "volunteers to take time off," but kept everyone employed. And the company, which prides itself on its frugal financial management, made it through with operations running, and it's ready to ramp up now that orders are returning.

Brad Chaffee said the same.

"While short-term profits would be affected, BRC felt the continued commitment to its valued employees and the communities in which it does business was more important," Brad Chaffee said. "We are pleased that we did not have to lay off anyone during the strike, and automotive sales are beginning to ramp up to normal levels."

In the short term, many suppliers affected by the strike are looking to ramp production back up as quickly as possible, though that could be easier said than done.

"Many of them indicated they'll need one or two weeks to call people back and make sure they have the full contingent of workers and that they have the materials they need, whether it's raw materials or subcomponents, in order to be able to produce their parts," Motor and Equipment Manufacturer's Association CEO Julie Fream said.

MEMA, which represents original equipment and aftermarket automotive parts suppliers in the U.S., found that about 40 percent of suppliers surveyed were forced to lay off some workers during the strike.

Harbour Results, meanwhile, estimated that about 11,000 auto maker and supplier workers were laid off, beyond the 45,600 workers who went on strike. And the Anderson Economic Group said Oct. 25 that the strike had cost the economy about $2.8 billion in lost supplier wages and earnings.

In an Oct. 31 statement, MEMA warned that "financial concerns over the smaller and lower-tiered" companies in the supply chain will continue to be a "significant issue" for the industry even as struck assembly plants ramp back up. Many smaller suppliers have found themselves in a precarious financial state since the onset of the pandemic, with higher costs, supply shortages and reduced new-vehicle production taking a large bite out of their bottom lines.

"Some of these companies, especially those that have lower revenues, were already very pessimistic before the threat of the strike," said Gabriel Rodrigues, a partner at consulting firm Falconi.

Suppliers in financial stress also are less likely to receive help from their banks given higher interest rates, Fream told Automotive News.

A recent survey by Harbour Results concluded that about 29 percent of manufacturers throughout the supply chain were "questionably bankable" based on their 2022 finances, meaning those companies had an unhealthy debt-to-earnings ratio. Another 21 percent were deemed "somewhat bankable."

"About 300 manufacturers gave us their balance sheet data from 2022, so what we're looking at is about 100 manufacturers are questionably bankable, in a situation where they might be getting phone calls from their bank or might not be able to secure additional funding," said Cara Walton, the director of market intelligence at Harbour Results. "There are a lot of concerns when it comes to the ability to run their business."

John Irwin, Automotive News staff, contributed to this report.