As the month of October winds down to its final week, both North America Automotive and UK/EU focused supply chain management teams can take a short pause from both actual significant disruption, and the threat of imminent disruption. However, such a pause is brief.

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General Motors Work Stoppage Resolved

After a 40-day work stoppage, labor union workers at General Motors have approved a newly negotiated labor contract and have returned to work. The disruption, GM’s longest disruption in over 50 years, involved upwards of 46,000 striking workers that crippled North American based auto factories, supporting supply and repair parts networks.

According to various published reports, the financial consequences to GM’s bottom-line exceed $3 billion while the new labor agreement is expected to add an additional $350 million or more in added labor and benefit costs for the length of the four-year deal. Union workers negotiated across-the-board higher pay for existing workers, a quicker path to full-time status for temporary workers with no changes to existing health benefits. Workers will further receive a one-time $11,000 bonus for ratifying the new labor contract.

What we believe is of additional interest was that the contract renewal talks also dealt with planned plant closures along with the needed transformations required to transition GM to a market more focused on electric-powered and shared ride vehicles. However, labor negotiations were not able to resolve worker request to have existing work performed in Mexico transferred to U.S. factories.

However, the disruption pause could be brief as the United Auto Workers labor union will know leverage the GM contract to initiate talks with Ford Motor Company for the next new labor contract renewal agreement, to be followed by Fiat Chrysler Automobiles. Business and industry publications have each noted that GM’s lucrative labor contract will be very tough to adsorb for Ford and Chrysler. Ford has been struggling with implementing an aggressive overall global restructuring and cost reduction effort to prepare for industry transformation to far more electrically powered cars and trucks. Once more, Ford has more hourly workers than GM. Both Ford and Fiat Chrysler are expected to also push back on the GM template for accelerated wage scale increases for existing temporary workers as well as existing healthcare benefit costs.

For North America automotive supplier networks serving Ford and Fiat Chrysler, the prospects for added disruption are real in the coming weeks, and before an expected contraction in North American automotive industry sales expected in 2020.

 

Brexit Again Postponed

Over the weekend, the European Union agreed to grant the United Kingdom up to three additional months, until January 31, 2020, to exit the EU. European Council President Donald Tusk described this latest extension as a ‘flextension,’ which literally means that the UK can exit at any point up until the end of January date provided the its government formally approves the exit agreement that Prime Minister Boris Johnson’s government recently re-negotiated with the 27 EU leaders. That new agreement addresses a different scheme in dealing with Northern Ireland tariff structures and elimination of the termed Irish backstopBrexit

As we pen this Supply Chain Matters update, the Prime Minister’s plan calling for an early snap election in an effort to block a political logjam was defeated by lawmakers. However, according to the latest reporting, two smaller anti-Brexit political parties are marshalling a further proposed law to hold an election on December 9, with a hope that a new Parliament would be more inclined to back a second people’s referendum measure that could overturn Brexit.

All of these added developments should be of little comfort to the regions multi-industry supply chain management teams that must now stand-down expected hard exit capacity and operational contingency plans that would go into effect later this week. Instead, the focus now turns to supporting the current seasonal holiday fulfillment period while keeping a keen eye toward ongoing back and forth deliberations occurring in the British Parliament and among the electorate.

Added contingency related inventory safety stock and transportation contingency expenses are obviously of keen concern as is the notions of what the end state ends up being. In some specific cases, with 2020 revenue and budgeting plans looming, more permanent decisions relative to alternative sourcing of product supply will have to be made very soon. There may come a time when businesses f=give-up on the political process and execute likely scenario-based product sourcing and customer fulfillment strategies.

Thus, the pause is likely shorter, while the overall implications continue to magnify.

 

Bob Ferrari

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