As the work stoppage involving all General Motors U.S. manufacturing facilities enters its fifth day, automotive supply networks that extend across North America will increasingly feel the effects of the production disruption.  With a lot of GM and labor union stakeholder issues at-stake, the disruption could will reverberate beyond GM to other manufacturers, and indeed many elements of existing supply networks. In other words, be prepared for longer term disruption. Chevrolet Bolt Electric Car

The Wall Street Journal reports that automotive supply networks are already beginning to experience the effects of the ongoing disruption, with a reality that dependent supply networks represent between five and eight additional jobs for the automotive industry workforce, many extending to Canada and Mexico. Workforce layoffs have begun for some suppliers with the potential for far broader layoffs as GM and labor union negotiations drag on.

While that is the daily news headline, of broader concern is that the ongoing GM work stoppage involves, what a WSJ headline cites as follows:

GM Strike Pits Combatants With Something to Prove- An auto maker with memories of bankruptcy, a union facing scandal.

In other words, there are far broader industry implications in this ongoing dispute, implications that can shape the structure of supply networks for many months to come.

As has been customary in labor contract renewal negotiations, the United Auto Workers (UAW) selects one of the three major automotive manufacturers to serve as the benchmark for a new labor contract. To little industry surprise, GM was selected because of what the WSJ cites as follows:

It’s a confrontation that has been building for years, with the two big institutions, both under acute pressure, driven by diverging goals.

When GM negotiations are finally resolved, labor and contract negotiations will shift to the other of the Big Three manufacturers, which include Ford Motor and Fiat-Chrysler. Each of these manufacturers have their own product transformation business restructuring interests at-stake.


Supply Chain Matters Perspective

At stake, from our Supply Chain Matters lens, is the reality of an industry that has managed to ride a multi-year wave of profitability generated by sales of high margin pick-up trucks and SUV’s, but increasingly concerned with the growing reality that transportation is moving in the direction of alternative energy, shared ride and autonomous driving vehicles.

GM was the first manufacturer to recognize the obvious, too many North American manufacturing facilities operating in a market that has obvious signs of unit decline and structural product change. GM’s decision in November of last year to execute a  major acceleration of restructuring of its global business, shuttering production at five North America based facilities and slashing its salaried workforce by 15 percent, while pleasing Wall Street, made the company the target for organized labor stakeholder interests.

At the time, GM CEO Mary Barra told reporters, in-part:

This industry is changing very rapidly when you look at all of the transformative technology — be it propulsion, autonomous driving, connectivity sharing — and we want to make sure we’re well positioned

Compounding ongoing negotiations are memories of the 2009 GM bankruptcy, when the UAW was forced to make major workforce and healthcare benefit concessions to allow GM and the rest of the industry to lean out restructure for a post-recession growth era.  Indeed, that era should have included the notions of what U.S. consumers were seeking in transportation and convenience needs.

What resulted was a whole new class of electronics-laden and connected vehicles which have generally pleased consumers. However, U.S. consumers tend to have short memories relative to high costs of gasoline, both in monetary and global climate change impact perspectives.

Now, strategic market realities are beginning to take hold.

They include the costs of developing new product families of electric or hybrid-powered vehicles compounded by a reality that prior collective industry unit production volume numbers are not likely sustainable. Electric powered vehicles have fewer mechanical  components related to both design and production needs. That implies reduced manufacturing capacity and headcount.  Throw-in today’s existing environment of global geo-political trade conflicts that have added high levels of uncertainty related to trade agreements and inter-regional material movements, such as the yet to be ratified USMCA trade agreement that is supposed to replace NAFTA. And, one other important factor, the U.S. Presidential Election cycle is about to move into full-on dynamics.

Indeed, this is a cocktail of conflicting stakeholder conflicts which do not disappear with a quick settlement of GM labor talks. The issues and stakeholder interest extend beyond GM, and beyond the UAW.

Our view is that North America based automotive supply networks should best be prepared for continuing uncertainty and disruption because industry structural and domestic political forces are at-odds and are not likely to be aligned for some time.

Once again, the industry must prepare for the next era, but this time, the immediacy and crisis of bankruptcy is not the motivator for needed changes. It is going to take further time and patience, and that implies a need for keen and diligent supply network planning and continuous risk assessment extending beyond the current GM work stoppage. Bottom line: this is going to take time and added interventions.


Bob Ferrari

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