Auto strike worsens Covid-weakened supply chain.
Auto strike worsens Covid-weakened supply chain.
The Impact of the Auto Workers’ Strike on the Automotive Supply Chain
The Covid-19 pandemic has not only made everyone an epidemiologist, but it has also shed light on the intricate network of manufacturers, assemblers, and shippers behind every consumer good that we receive, including cars. Car prices have skyrocketed due to the supply chain disruptions caused by worker shortages, chip shortages, and shipping delays. Now, the industry faces another challenge as plants at Detroit’s Big Three automakers – Stellantis, Ford, and General Motors – have been forced to close again. This time, it’s because nearly 13,000 members of the United Autoworkers Union (UAW) have gone on strike, demanding reforms such as higher pay and shorter workweeks in the midst of the industry’s transition to electric vehicles.
A prolonged strike may lead to a supply crunch similar to the one caused by the pandemic, resulting in higher consumer prices for cars and car parts. Moreover, the wider auto supply chain, which includes hundreds of companies and thousands of workers, may face another stress test. Mike Wall, an automotive analyst with S&P Global Mobility, explains that suppliers have already endured significant challenges over the past few years, including the pandemic, a microchip shortage, commodity squeezes, inflation, and interest rate hikes.
While the Big Three automakers themselves may not be the most affected by the strike, smaller auto suppliers further down the supply chain, who provide components for larger systems, could suffer the most. This includes suppliers of seating, heating, and raw materials. According to the Motor & Equipment Manufacturers Association, around 4.8 million Americans work in the auto parts manufacturing business.
If automakers fail to reach an agreement with the UAW, a domino effect will occur within the auto supply chain. The Detroit giants will instruct their largest suppliers to stop sending new parts, and these suppliers will reciprocate with their own suppliers. Erik Gordon, a professor at the University of Michigan Ross School of Business, emphasizes the potential financial strain on smaller suppliers, who may not have access to sufficient cash reserves to sustain themselves if the suppliers above them cease orders.
What makes this strike different from past labor disputes in the US auto industry is that it targets all three major American manufacturers simultaneously. Auto building relies on long-term contracts, and if the strike continues, suppliers will only have their existing business with foreign automakers or nonunionized manufacturers to rely on, such as Toyota, Honda, and Tesla.
The UAW has defended its walkouts, asserting that they won’t harm the US or its workers. UAW president Shawn Fain argues that the strike will only impact the billionaire economy, not the overall economy. The union’s demand for 36 percent raises for workers over the contract period is justified by pointing out the even larger increases in executive pay. Fain states that the working class is struggling to make ends meet while the billionaire class flourishes.
Fortunately, unlike the pandemic, the strike was not unexpected, as negotiations have been ongoing for weeks, with clear differences between the UAW and automakers. This provided some advance notice for suppliers to take precautions. Automotive analysts have advised suppliers to speak with their lenders to extend lines of credit and consider areas where they can cut costs, even down to small expenses like doughnuts and coffee. Despite efforts to protect cash flow, it remains challenging to tackle the ongoing shortages in components and raw materials.
For smaller suppliers unable to weather the strike, there may be hope on the horizon. The Biden administration is reportedly in preliminary talks to provide assistance to those who face financial difficulties due to the strike, especially if it extends beyond six to eight weeks.
The pandemic has taught many companies the importance of building a more resilient auto ecosystem. The concept of “just in time” manufacturing, which aims to produce and deliver the exact number of parts needed at the precise moment, has evolved to incorporate a “just in case” approach, where there is a buffer of inventory to mitigate potential disruptions.
As the strike unfolds, the auto industry and its supply chain are once again navigating uncharted territory. The outcome of the negotiations between the UAW and automakers will not only determine the fate of the workers but will also shape the future of the automotive industry as it navigates the transition to electric vehicles and addresses labor and economic inequalities.
