Sub-Tier Suppliers Suffer as General Motors Strike Continues

Sub-Tier Suppliers Suffer as General Motors Strike Continues

Executive Summary

  • About 48,000 unionized workers with General Motors (GM) walked off their jobs on September 16 at multiple US plants in what is described as the largest factory strike in the US since 2007.
  • With negotiations stalled, the strike entered into its fourth week on Monday, October 7, costing GM between 660 million and 1 billion in lost profits so far.
  • A large pool of auto parts suppliers depending on GM’s demand has also been forced to react to reduced demand from GM, with about 75,000 employees either having been temporarily laid off or experiencing wage cuts.
  • While primarily affecting the North American automotive industry, many of GM’s suppliers also produce component parts used in other manufacturing industries, from aerospace to agricultural to heavy machinery, extending the strike’s impact beyond the auto industry.
  • A prolonged strike of more than a month could have serious implications for the US economy, given the importance of the automotive supply chain, especially to the Midwest.

Background

On September 16, about 48,000 unionized workers with General Motors (GM), the largest US automaker by vehicle sales, walked off their jobs at multiple plants across the United States in an attempt to secure higher pay, greater job security, and more healthcare benefits in what is described as the largest factory strike in the US since 2007.

With negotiations between negotiators of the United Automobile Workers union (UAW) and GM management stalled, the strike entered into its fourth week on Monday, October 7, costing GM between USD 660 million and USD 1 billion in lost profits so far, according to estimates. As production lines at many GM factories continue to stand still, the strike has caused ripple effects across automotive supply chains in North America, affecting more than 150,000 workers and spreading to GM plants and their suppliers in Canada and Mexico.

As of October 11, two key issues to ending the strike remained unsolved. First, UAW workers want GM to make further commitments on building more future products in the United States, bringing back vehicle assembly lines from countries like Mexico and China. Second, UAW workers reportedly also seek more guaranteed wage increases in the next 4-year labor contract, while GM is only ready to give lump-sum bonuses during the four years that will avoid raising long-term labor costs.

Factory Strike Causes Mass Layoffs at GM Suppliers

The strike, which entered its 26th day on October 11, has downed production lines at GM’s 34 US plants and has started to have cross-border implications that reached Canada and Mexico due to the just-in- time nature of the automotive supply chain.

In early October, GM was forced to close some plants in Mexico for a few days due to a shortage of parts made in GM’s US factories. Across the border in Canada, GM halted all vehicle production as early as September 20 due to component shortages at its Oshawa and its feeder plant of Inteva Products in Whitby, Ontario. As of October 9, only five of GM’s plants in North America continue to partially operate despite the strike: Ingersoll and St. Catharines in Canada; as well as Ramos Arizpe, Silao and San Luis Potosi in Mexico.

In addition, a large pool of auto parts suppliers depending on GM’s demand has also been forced to react to reduced demand from GM, with about 75,000 employees either having been temporarily laid off or experiencing wage cuts. Among the companies most affected are often tier-1 suppliers that operate on a just-in-time basis, delivering difficult-to-ship parts to GM’s assembly plants in the US, Canada, or Mexico from factories located nearby. An overview of sub-tier suppliers affected to varying degrees by the walkout at different locations in North America can be found in the table on the next page.

CountrySupplier name
Canada 
 Martinsrea International Inc. 
 Magna International 
 Linamar Corporation
 Lear Corporation
 CEVA Logistics 
 Syncreon
 Auto Warehousing Company Canada
 Oakley Industries
 Robinson Solutions
United States 
 Aludyne (ex-Chassix Holdings)
 Nexteer Automotive
 Lear Corporation
 Universal Dedicated
 Cooper Standard
 Android Industries
 ZF North America
 Aptiv
 American Axle & Manufacturing
 Pridgeon & Clay
 Stripmatic Inc
 Adient Inc
 Steel Parts Manufacturing Inc
 Hart Automotive Supply 
Mexico 
 Lear Corporation
 Adient Inc
 Elektrokontakt (EKM)
 Mahle Behr

As a result of the temporary measures that include laying off workers, shifting production schedules to prioritize other customers, or entirely halting production, affected suppliers will likely face increasing financial pressure. This has been highlighted by recent profit warnings of larger suppliers such as Canada’s Linamar which lost about 10 per cent of its stock value after warning that the GM strike affected its earnings by up to USD 1 million per day. Other tier-1 suppliers such as American Axle & Manufacturing and Lear Corp are likely to lose USD 2 million per day, according to financial analysts. However, smaller suppliers may be at even greater risk of the sustained impact of the strike as they struggle to keep temporarily laid-off qualified staff until the strike ends, which could prevent them from increasing production as needed to supply GM.

In addition to official profit warnings and analyst estimations, a Bloomberg assessment on October 7 of share prices of the largest listed suppliers revealed that – assuming that the worst affected companies have the largest exposure to GM’s supply chain – among the most affected companies are Cooper Standard, Tenneco and Adient, all of which have lost 20 percent of their share price. Suppliers having lost between 10 and 20 percent of their share price are American Axle, Lear Corp, Borgwarner, and Dana. Suppliers minimally though still affected, according to this measure, are Aptiv, Magna, Gentex and Visteo, whose share price dropped by 7.5 percent.

Supply Chain Impacts Go Beyond the Automotive Industry

While primarily affecting the North American automotive industry, many of GM’s suppliers effectively also produce component used in other manufacturing industries, from aerospace to agricultural to heavy machinery, extending the strike’s impact beyond the auto industry. While this has temporarily saved some of the suppliers as they could prioritize production for other customers, it could have an impact on their financial profitability as some delayed production cannot be recovered once the strike ends. This makes a loss of profits or profit shift to next year more likely, potentially causing cash-flow problems for smaller suppliers with a limited customer base. Dearborn-based trucking company Phoenix Trucking said on October 9 that it may have to shut down business if the strike does not end soon.

Figure 01: GM’s footprint of manufacturing facilities across North America. Source: GM company website

In addition to the automotive industry, Gentex Corporation, for instance, manufactures products such as interactive aircraft windows for the aerospace industry. Lake Forest-based Tenneco Inc specializes in shock absorbers and vibration control component, among others, for the agricultural and heavy machinery industries, while business divisions of Dana Corporation produce components for markets that include plastics and rubber, railway, steel, and paper. And last but not least, potentially hundreds of logistics suppliers relying on transporting component parts to GM factories may go out of business should the strike continue for much longer. 

Outlook and Recommendations

Despite daily talks between top negotiators, key issues such as future job security and guaranteed wage increases remained unsolved as of October 11. Contrary to earlier signs of progress, the negotiations took a turn for the worse after the union rejected GM’s latest offer on October 7, according to union officials. Industry analysts reckon that a prolonged strike of more than a month could have serious implications for the US economy, given the importance of the automotive supply chain, especially for the Midwest. And the disruption could potentially continue even after the strike ends as suppliers may struggle to ramp up production due to labor shortages in a competitive market, further exacerbating financial pressure on sub-tier suppliers.  

To stay on top of the dynamic situation and mitigate potential supply chain disruptions, organizations should: 

  • Proactively examine whether their supplier base with a large exposure to the automotive industry is affected by the strike, and potentially faces financial pressure. This can significantly reduce the response time needed to activate mitigation measures and leverage time as a competitive advantage when deciding to secure alternative sources and/or increase inventory levels.
  • Be mindful of using dual-sourcing strategies for key production components. Reducing the number of suppliers has become a norm to allow for more strategic relationships with a handful of key suppliers. However, given the expanding nature of supply chain risks, firms should consider undertaking a strategic cost-benefit analysis to assess if the added cost of sourcing from different geographical locations and alternative suppliers can be worthwhile to prevent future shutdowns.
  • Use real-time supply chain risk monitoring tools to continuously keep abreast of further developments regarding the strike and assess its impact on one’s own manufacturing and transportation networks. 

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