Our View: As UAW celebrates victory, auto supplier health may suffer

When the United Auto Workers negotiations began this past summer with the Detroit 3, UAW President Shawn Fain made bold predictions on what he wanted to accomplish at the bargaining table.

It's likely few in the automotive world gave Fain much hope of coming close to meeting those aspirations.

Following an unorthodox approach to its strike, the UAW president and his team seemed to be a step ahead of their Detroit 3 counterparts throughout the six-week work stoppage.

And, as the dust settles on the UAW strike of 2023, the gains Fain made for his union members are impressive.

To put the new contracts with Ford, General Motors and Stellantis in perspective, UAW members covered by the new contracts will gain more over the next 4 1/2 years than Fain's predecessors were able to negotiate over the past 22 years combined.

Of course, when there are winners on one side, there are losers elsewhere.

And some believe the short end of the stick may have been drawn by those who supply auto manufacturers, including those who produce the rubber components that are so vital to every vehicle coming off the assembly lines.

While J.P. Morgan estimates the new contracts could cost GM $1.3 billion in EBIT per year and Ford about $1.5 billion in EBIT annually, an analyst for the financial firm told attendees at the Motor and Equipment Manufacturers Association's Supplier Conference Nov. 7 that those amounts were "relatively manageable."

But some suppliers—particularly those on the lower tiers that don't have near the profit margins as their vehicle manufacturing customers—likely will have more difficulty weathering the financial distress caused by the UAW strike.

MEMA, which represents original equipment and aftermarket automotive parts suppliers in the U.S., said about 40 percent of surveyed suppliers laid off some workers during the strike. The association said financial concerns for smaller companies in the supply chain will continue to be an issue as auto production ramps back up.

Many of these suppliers still are trying to recover from higher costs, supply shortages and reduced vehicle production that have been prevalent since the start of the pandemic.

Third-quarter financial results are giving a bit of an insight into the impact on publicly held auto suppliers. Sealing producer Dana Inc. said sales declined $65 million in the third quarter because of the strike and anticipated a $185 million drop-off in October.

Cooper-Standard Automotive said it lost close to $30 million in revenues as of Oct. 31, which translates into lost EBITDA of $10 million. The rubber goods firm, though, said it is ready to meet customer demand as vehicle production ramps back up.

Others, though, may not be so fortunate.

Laurie Harbour, an industry analyst and CEO of Harbour Results Inc., said some suppliers won't make it over the long haul because of reduced revenue and cash flow. Her firm found that 29 percent of manufacturers throughout the supply chain—based on an unhealthy debt-to-earnings ratio—were deemed "questionably bankable" and another 21 percent "somewhat bankable."

While the UAW celebrates the spoils of its new contracts, let's hope these auto supplier firms and their employees don't end up paying the price for the union's victory.