In this second Supply Chain Matters reader update, we highlight the ongoing supply chain and manufacturing implications of the labor strike involving the three U.S. unionized auto companies.
One week ago, after ongoing labor contract renewal talks failed to reach an agreement by midnight, the United Auto Workers (UAW) labor union initiated targeted walkouts among select production facilities of Ford Motor, General Motors and Stellantis.
The UAW elected a strategy that avoids a massive strike action, and instead focus on rolling work stoppages targeted at individual automakers most popular and profitable car models. We indicated that this action was akin to targeting the most vulnerable links among these three automaker’s supply and production networks.
Initially, 12,700 workers walked off their assigned shifts at the Ford Motor vehicle assembly plant that produces the Bronco SUV, a GM Missouri assembly plant producing popular pick-up trucks, and the Stellantis assembly plant producing the branded Jeep Wrangler SUV.
Latest Ongoing Developments
Throughout this past week, while contract negotiations continued, the rhetoric of the labor union, and the warnings of the heads of the three auto makers continued to make business headlines.
Some progress has been disclosed, specifically that Ford has agreed to reinstate cost-of-living wage adjustments that were eliminated in 2009, along with what is described as an enhanced profit sharing element to wage structure. According to reporting from business broadcasting network CNBC, “the labor union won the right to strike over (Ford) plant closures during the term of the deal as well as an immediate conversion of temporary, or supplemental, workers — those with at least 90 days of employment — upon ratification.” Ford has indicated that there are still significant gaps to close on key economic issues.
GM has indicated in a statement that this added escalation is unnecessary and that five proposals have been placed on the table. Stellantis indicated to CNBC in a statement that it questions “whether the union’s leadership has ever had an interest in reaching an agreement in a timely manner.”
Meanwhile, workers across Ford Motor’s Canadian production facilities avoided a strike action after a tentative three year labor contract agreement was reached after extended hours of negotiation. The Unifor labor union reportedly bargained for higher wages, increased pension benefits and support for workers involved in transition to electric vehicle production needs.
As expected, with the existence of this industry’s just-in-time inventory replenishment planning, the implications of the work stoppages are cascading across individual automaker’s supply networks. The three automakers have initiated worker layoffs involving thousands across dependent facilities because of final assembly plant stoppages. Individual auto suppliers that had high reliance on component supply for these three specific automakers, are also now feeling the initial impacts.
UAW President Shawn Fain also threatened that if no progress in labor talks was evident by Noon Friday, then the labor union would increase its facility targeting and strike actions.
As we pen this update late on Friday, upwards of 38 termed parts distribution centers across 20 states have now been subject to picket lines. However, Ford Motor facilities are not involved in this added strike action. According to Fain: “We do want to recognize that Ford is serious about reaching a deal. At GM and Stellantis, it’s a different story.”
With this added action, the labor union’s select targeting of supply network links focuses on auto dealership vehicle repair service needs, and specifically the parts required to fix vehicles. The disruption now directly involves end consumers with added inconvenience.
Broader Industry Wide Implications
As noted in our prior commentary, what makes these talks significant and possibly groundbreaking is the backdrop of an industry that has embarked on a rather expensive and risk laden transformation in regard to development and production of more electric or hybrid powered vehicles that include batteries and electronic components vs. complex engines and transmissions.
Specifically for the U.S. automotive supply chain footprint is the unique nature of existing auto assembly and supplier production sites where foreign based auto manufacturers have elected to primarily locate production within U.S. southern states where right to work and non-union labor laws are practiced. Industry data points to a $10 to $15 per hour difference on average in total direct labor costs among non-union vs. UAW contracted labor with production in the predominate U.S. Midwest sector. According to reporting from Bloomberg, direct labor costs for Tesla’s U.S. facilities average $45 to $50 per hour on a fully loaded basis.
Today, China based EV automakers and suppliers have notable cost advantages in materials sourcing, production and labor costs. Thus, some U.S. automakers were forced to formulate production or component alliances with Asia based suppliers either in China or operating in in Mexico in order to support U.S. production needs and capabilities. Labor unions are not a fabric of Asia based suppliers and technology providers, and barring existing high tariff levels, Chinese auto makers seek to eventually export their EV vehicles to overseas markets such as Europe and other countries.
Supply Chain Matters continues to view these ongoing labor contract talks, along with the confluence of the various stakeholder interests to be pivotal to U.S. based production and supply network strategies in the coming years. The stakes are high and include political, labor and changed labor management relations thinking.
Further, the UAW carrot and stick tactic of lessening the impacts for any automaker deemed to be more proactive in negotiations, adds to the dynamics as to how each automaker will respond to subsequent escalation of work stoppages.
Some Broader Perspectives
Supply Chain Matters has been reaching out to other observers to gain added insight on these particular labor relations events.
We had the opportunity to speak with Professor David Jacobs from American Univerisity’s Kogod School of Business. Professor Jacobs is a noted observer and published author on labor union strategy. He has further been a former faculty member at the University of Michigan.
Regarding perspectives on these ongoing labor relations development, Jacobs observed: “The UAW is attempting to return to a previous era of shared prosperity in the auto industry, a return to the treaty of Detroit that provided a period of shared economic development and progress in the auto industry.”
He went on to explain that this prior era included the economic shocks of the seventies and the global financial crisis in 2007 to 2008 when the real threat of two of the three U.S. automakers facing bankruptcy. At that time the UAW granted the big-three automakers the flexibilities of a freeze in base wages, cost-of-living wage adjustments and granting of a multi-tiered compensation system. Jacobs describes the current negotiations as a “Crucial moment with the stakes being high on both sides.”
He observes an aggressive and unexpected UAW stance with unanticipated negotiation tactics with what he describes as doves and hawks on the employer front, holding the threat that any one automaker may attempt the use of the nuclear option.
Regarding current union demands and the history of these three automakers, Jacobs observed that the Covid-19 pandemic and the consequent dislocation impacts experienced in the industry forced both sides a sense of possibilities and realization that the ways of getting work done were not fixed, a sense of new possibilities.
In that vein, Jacobs views the opportunities provided in these current negotiations as possibilities to ease workers further into the industry’s ongoing transition to the EV era and what that implies in changed skills, job roles and in worker needs. He cited the labor relations management term of “attitudinal restructuring” which equates to shaping and reshaping attitudes that may be related to trust, distrust, friendliness or hostility between labor and management.
What makes these particular negotiations so pertinent and high stakes is the added reality that within the U.S. there exists right to work labor management practices in some states that are attracting certain automakers, while there are unionization practices in other states that are predominant for the big 3 U.S. automakers. As we have noted, while the overall fully loaded wage rates are currently narrow among both regions, these negotiations have an impact for both, including added impacts for increased productivity.
Impacts Reverberate
Meanwhile, this industry’s business dynamics and repercussions as a result of these critical labor negotiations continue.
Spencer Shute, Principal Consultant at Proxima, a Bain & Company supply chain consulting firm observed in part:
“While some companies may benefit initially from reduced supplier orders coming from GM, Ford, and Stellantis, as the strikes progress and prolong, disruption will impact the whole automotive supply chain even further than the initial blow, and forecast predictability is greatly reduced, creating even more uncertainty for the entire industry.
Suppliers will be looking to other auto manufacturers to prevent their supply chains from having too much on-hand product while simultaneously working to ensure supply chain continuity once the strikes are over. Compounding economic conditions have already started to impact the new car market but expect the non-UAW manufacturers to work on securing greater market presence during this time.”
Indeed, these are the hallmarks of such industry-wide disruptions, especially those that involve the high stakes impacts of an overall industry transformation, namely which factions will garner the most economic benefits.
Stay tuned for continuing weekly updates.
Bob Ferrari
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