ARPM webinar: Prolonged UAW strike would hit auto suppliers hard

Brace for the long haul.

Because this fight—the one the United Auto Workers union has taken up against General Motors, Ford and Stellantis—looks as though it won't conclude anytime soon.

"We have a pessimistic view of this being resolved in the short term," Mark Barrott, a partner with Plante Moran, said during a webinar hosted Sept. 19 by the Association for Rubber Products Manufacturers and the Manufacturers Association for Plastics Processors. "… We have—at least in the early stages—a strike, which is impacting severely those that are involved but is missing quite a bit of the industry."

For now.

That could—and likely will—change.

In fact, if Barrott had to guess, he'd say that this battle is just beginning. It has all the makings of a months-long, continually escalating strike that surely will have cascading impacts on North American auto industry suppliers.

"The industry, while worried and concerned … is surviving this week," Barrott added. "Maybe next week will be a different case. And I think that is part of the issue here; this is going to evolve on a weekly basis.

"I think there is going to be a weekly cadence to this strike, where, at the end of the week, if serious progress is not being made in the negotiations, there will be an escalation."

The UAW launched its initial strike Sept. 15, targeting one plant from each of the Detroit 3 auto makers. Collectively the plants employ around 13,000—or about 9 percent of the UAW membership, according to Automotive News.

So far, the union has taken aim at:

• GENERAL MOTORS' Wentzville Assembly plant near St. Louis, which builds the Chevrolet Colorado and GMC Canyon pickups and Chevrolet Express and GMC Savana vans.
• FORD'S Michigan Assembly plant west of Detroit, which builds the Bronco and Ranger.
• STELLANTIS' Toledo Assembly Complex in Ohio, which builds the Jeep Gladiator and Wrangler.

"Frankly, this could have been worse," Barrott said. "This is a relatively soft opening salvo to this whole strike. … Three plants have been hit so far. Between the D3, they have 90 plants in the U.S., so there is a lot more to go, and frankly, a lot more strategic targets that they could pick."

The union says it has other plants in its sights.

And the UAW has promised to continue expanding its strike, effectively shutting down more production and taking aim at higher-value vehicles for as long as negotiations fail to move forward. And Sept. 22, UAW President Shawn Fain said, is the next deadline.

"The ability for this strike to take a lot of different forms is what the UAW has been planning for for months now—and that is their ability to be very strategic and take down powertrain or stamping or critical high-volume assembly plants," Barrott said. "They are planning on that, and we expect to see that going forward."

The tactic employed by the UAW has roots in an approach taken in the 1930s, according to Ted Morgan, another partner with Plante Moran who also presented during the ARPM and MAPP webinar. That strike—a sit down strike—asked workers to sit down while on the job.

This approach, Morgan said, harkens back to that history, by calling on workers to now "stand up" and walk out.

"This is the UAW leadership team taking advantage of leveraging a 90-year-old strike approach, to say they were going to stand up and episodically walk the heck out of a plant," Morgan said. "The big difference, though, is that transplants like Tesla and other companies weren't in the United States at the time."

The D3, he said, doesn't have the same market share it did back then. Especially in the evolving EV space.

Overall, Automotive News reports, the D3 market share has dropped from 68 percent in 1999 to 40 percent as of June 30 this year.

Should the fight between the union and the auto makers continue as long as Barrott expects, the impacts could be severe for auto suppliers. And the ramifications know no tiers.

For the most part, though, many suppliers—particularly larger suppliers with parts across a range of vehicle platforms—probably aren't feeling the pinch from the strike just yet.

But for Tier 1 suppliers, the Detroit 3 could represent a significant portion of their OE sales—in some cases billions of dollars. And as more and more of that production comes offline, the impacts compound. And that, Barrott noted, "is a very worrying place to be."

That means there's planning to be done, Barrott said, and it's likely that suppliers are bracing for the long road ahead.

"In some cases, we have talked to clients who said, 'it is not impacting us today and we will keep on producing.'

"Right now," he said, "you can afford to think about continuing where you are today, if you are in one of the 87 other plants not impacted by strike action."

What you can afford, though, is relative.

Because automotive suppliers, in many cases, are walking proverbial tight ropes. They have been since the pandemic—and maybe even before that, going back to the strike against GM in late 2019. They have faced pressures from a number of angles—supply chain, materials costs, labor shortages, inflation and uneven demand for products that was driven mainly by microchip shortages.

Many Tier 1 have gone to the auto makers to seek relief of some kind and renegotiate contracts, and have had varying levels of success. In cases where they have, they have been able to pass along some of that relief to their suppliers—who have been hit even harder by the economic and logistic pressures.

"From the customer's position, they might say it's because a supplier isn't managing their business properly or controlling their costs, but that only goes so far," Dan Rustmann, co-chair of Detroit law firm Butzel Long's global automotive group, told Automotive News. "Across the supply base, suppliers have been suffering from increased costs and fixed-price contracts and really having to fight and argue to get any relief.

"And if it comes, it comes very grudgingly."

Those are the suppliers that could be hit hardest as this labor dispute between the union and the OEMs plays out.

"The impacts of this strike are not made equal," Barrott said. "… As we go through the tiers, the areas that I worry about are those organizations—not particularly well capitalized—that are still making efforts to recover from COVID, recover from supply chains, semiconductors and demand volatility from their customers."

But the suppliers that Barrott is most worried about? The smallest ones, those with niche products and the least leverage to pressure OEMs. They were likely among the hardest during the challenges of the last three-plus years. And if they are still reeling, the gut punch from the strike could make it tough moving forward.

"They are the organizations that I worry about because their leverage is less extreme with the OEMs—you know, 10 folks that make a particular product or could make a particular product." Barrott said. "The OEMs are less likely to be interested in keeping you alive if the product is not necessarily innovative or critical to a program. That is a problem."

Ultimately, Morgan said, there isn't a whole lot suppliers can do at the moment. He encouraged those attending the webinar to stay abreast of the latest news and keep an eye on the UAW and OEMs as contract negotiations unfold.

Because all you can do, he told them, is plan accordingly for what looks to be ahead.

"You effectively have the needs and interests of 150,000 workers impacting a market that has—depends on which benchmark you use—some say has about five, six or seven times the amount of workers that are required for every UAW worker at the hourly level," Morgan said. "… There's a million other workers—including the folks on your companies' plant floors—that are impacted by this, that aren't part of the negotiation strategy at all. …

"That is, of course, an unfortunate and unintended outcome of this. But the UAW is able to use it as leverage because they are smart enough to know that this is impacting more than just their workers."

John Irwin, Automotive News Staff, contributed to this report