This story first appeared in our sister publication Crain's Detroit Business.
Auto suppliers brace for a strike that could turn supply chain on its head
Metro Detroit auto makers aren't the only ones worried about contract talks with the United Auto Workers. The entire supply chain is sweating the potential of a strike.
Automotive parts producers up and down the tiers are preparing for a possible work stoppage next month that could result in devastating losses depending on how long it lasted. For sub-tier suppliers already in dire financial straits, the threat is existential.
For the larger, tier 1 suppliers, a halt in vehicle production would result in millions of dollars in financial losses in short order, according to the companies. Some suppliers have tightened up spending and baked potential losses into forecasts for the second half of the year. The risk is apparent for those with high exposure to North America and the auto makers at the negotiation table: Ford Motor Co., General Motors Co. and Stellantis NV.
With newly installed UAW President Shawn Fain going at auto makers aggressively, suppliers feel the tension ratcheting up and they most assuredly have a game plan if a new deal isn't reached when the current contract expires Sept. 14, said Glenn Stevens, executive director of MICHauto and vice president of mobility initiatives for the Detroit Regional Chamber.
"They're all preparing to various degrees," Stevens said this week on the sidelines of the Center for Automotive Research Management Briefing Seminars in Traverse City, where the topic of a potential strike was the elephant in the room. "If you're not anticipating that, you're flying blind, and companies aren't doing that."
While talk on stage at the annual conference of industry leaders centered on themes of vehicle electrification and driverless technology, chatter among many attendees was about the UAW labor talks underway and what it would mean for business if they broke down.
"It's been a topic of discussion at the conference – some companies are really proactive, and they've got roadmaps already built," Stevens said.
It is also a major topic of discussion for stock analysts. The question of a potential strike came up multiple times on analyst calls with some of the industry's largest suppliers reporting quarterly earnings this week, including Lear Corp., Adient plc and BorgWarner Inc.
Lear, the Southfield-based seating supplier, has painful memories of the GM strike in 2019. The six-week work stoppage, which cost the auto maker about $4 billion all told, cost Lear $70 million to $75 million each week. GM is the company's most vertically integrated business, Lear CFO Jason Cardew said on the analyst call Tuesday.
"Each week of downtime, if all three customers were to go down, it's about $140 million of revenue," he said.
Lear's revenue projections for the second half of the year included $350 million of contingency—$300 million in seating and the rest in e-systems—for potential downtime due to labor negotiations, according to the executive.
"(We) have the playbook outlined on what we will do if a strike takes place," Cardew said. "There are things that we can control on discretionary spending, certainly some customer negotiations or discussions."
Lear's crosstown competitor Adient—whose business is tied more to Toyota and Honda, and increasingly to Chinese auto makers—is less exposed to a strike against the Detroit 3 auto makers.
Still, if all three manufacturers were to go down, it would amount to $80 million to $100 million of revenue per week for Plymouth-based Adient, CEO Doug Del Grosso said on a call with analysts Wednesday. The company chose not to factor the potential losses into its forecasts, "given the unpredictability of how that strike could play out," but it has compelled Adient to check its spending.
"We think about the UAW strike as a reason to maybe give us pause and hang on to (the cash) until we have a better idea of what the impact will be to our fiscal year '24, specifically our fourth quarter," Del Grosso said.
BorgWarner's North American exposure to the Detroit 3 amounts to a little less than $250 million per month, CFO Kevin Nowlan said on an analyst call Wednesday. The Auburn Hills-based company did not embed that potential loss into its guidance.
"It's hard for us to sit here and guess with a crystal ball what that might look like," Nowlan said.
Plant closures and mass layoffs have mounted among injection molders and tool-and-die shops around Michigan. A strike could add to the casualties of small suppliers in a dramatic way, Stevens said.
"There's a lot of trepidation about the status of the supply base as a whole, but there's a real big concern for the smaller tier suppliers across the supply base," he said.
The next best thing to peering into a crystal ball, he added, is for companies to get on the phone with lenders and customers to keep them apprised of their financial and operating status. Perhaps the past few years of managing supply chain chaos brings some patience to the turmoil that a strike would create.
"I would say this year in particular is a period of a lot of communication because the OEMs have had to work with the suppliers on input cost relief," Stevens said.