UAW strikes threaten already vulnerable auto parts suppliers

US Markets
Wednesday, September 27th, 2023 2:34 pm EDT

The United Auto Workers (UAW) strike against major U.S. automakers, including Ford, General Motors (GM), and Stellantis, has entered its second week, and its economic impact is beginning to reverberate throughout the automotive supply chain. While the larger automakers and their Tier 1 suppliers are relatively well-equipped to endure an extended strike, a vast network of smaller suppliers faces considerable challenges, including potential business closures.

This network encompasses approximately 5,600 companies, primarily located in the upper Midwest, that provide various components like seats, suspension parts, and wiring harnesses for vehicles. Collectively, these suppliers employ around 871,000 workers. Many of these smaller suppliers have only recently recovered from the disruptions caused by the COVID-19 pandemic and the semiconductor shortage. Now, they are confronted with increased pressure to raise wages for their workers in an environment where higher interest rates have made borrowing more expensive, all while dealing with the threat of ongoing auto workers’ strikes.

Dennis Devaney, a Detroit attorney who has represented both GM and Ford, expressed concerns about these suppliers, noting that some are still grappling with semiconductor and component supply issues, partly due to disruptions in China, where many of these components are sourced.

Harbour Results, a manufacturing advisory firm, estimates that approximately 30% of these smaller suppliers were financially precarious or considered “unbankable” as of the end of 2022, with an additional 21% classified as struggling.

The Motor and Equipment Manufacturers Association (MEMA), a trade group representing auto suppliers, has appealed to the White House for assistance. They have requested the Small Business Administration to provide low-interest loans to suppliers with annual revenues under $200 million, specifically targeting those in financial distress. MEMA highlighted that these suppliers are often the largest employers in their respective regions and that a disruption in their operations could affect the entire automotive production chain.

In response to the ongoing strikes, some smaller suppliers have already begun laying off workers. This poses the risk that these employees, in a tight labor market, may find other jobs, making it challenging for suppliers to rehire them once the strikes are resolved.

Publicly traded suppliers like Lear Corp., Dana, Magna International, and Adient are also expected to be affected by the strike, although the impacts haven’t been widespread yet. Dana, a supplier of various automotive components, has announced temporary layoffs due to the UAW strikes at Jeep and Ford plants. If the strike persists and expands, these larger suppliers could face more significant challenges.

Analysts suggest that automakers may also exert pressure on suppliers to reduce costs to offset the anticipated multibillion-dollar increases resulting from tentative agreements reached with GM, Ford, and Stellantis. This could create tension in supplier-OEM (original equipment supplier) negotiations, as some suppliers may resist these demands, while others may face added complexities in adjusting their operations.

In conclusion, while the UAW strike’s immediate impact is being felt by smaller suppliers, the ramifications could eventually extend to larger suppliers and affect the broader automotive industry. The call for government support highlights the vulnerability of these smaller suppliers, which play a critical role in the production of vehicles across the United States.

For full article on CNBC, please click here: https://www.cnbc.com/2023/09/27/uaw-strikes-threaten-already-vulnerable-auto-parts-suppliers.html