Regardless of when the historic UAW strike against General Motors Co. ultimately ends, the disruptive effect of lost production and earnings will linger, putting further strain on an industry already flagged by slowing sales and tariff disputes with China.
The strike as of press time had frozen production at 34 domestic GM factories for more than a month and obstructed operations across North America, as well as exacted a significant financial toll on the company, its workers and the economies they support.
Analysts estimate the disruption has already put a dent of more than $2 billion in GM’s earnings and has cost hundreds of millions of dollars in lost wages and taxes.
As this report went to press, union members were still voting on the contract agreement reached with GM. Regardless of which way the vote goes, the strike has already had a real effect on the U.S. and Michigan economy, according to industry experts.
GM’s direct suppliers furloughed about 12,000 workers as of mid-October, according to the Original Equipment Suppliers Association. That estimate doesn’t include layoffs further down the tiers of the automotive supply chain.
For every UAW worker on strike, another 10.5 jobs in the U.S. economy were indirectly affected, with more than three of those jobs in the production-focused automotive supply chain, according to the Ann Arbor-based Center for Automotive Research (CAR). The effect can be felt especially in West Michigan, where high concentrations of auto suppliers remain reliant on the Detroit-based automaker for work.
“Part of remaining a competitive business is always adapting,” Peter Hungerford, COO of Grand Rapids-based ADAC Automotive Inc., told MiBiz. “Sometimes, you’re in charge of dictating how quickly these things happen and sometimes, you have no control and you simply just have to respond.”
ADAC, a Tier 1 supplier, does about a quarter of its overall business with GM, according to Hungerford.
As the strike began to take a toll on the supply chain, ADAC diverted workers to other projects and offered cross-training programs as much as possible. However, by Oct. 4, the company could no longer afford to keep its full staff around and made “workforce adjustments,” said Hungerford, who was hesitant to describe the actions as layoffs.
“Some (workers) have chosen to take vacation or they have chosen to do different things,” he said. “The fundamental thing that we’ve tried to do as an organization is to be completely transparent with our team members and, even more important, continue to communicate with them because we want them to return, and as quickly as we can.”
In an already historically tight labor market, suppliers have leaned into temporary fixes throughout the strike, hoping to keep the workers that they have until GM orders start rolling in again.
“Many of our roles aren’t easy to fill,” Hungerford said. “They’ve put a lot of time and energy and have relationships here, and we have relationships with them. There’s the business aspect of it, but more so, there’s the people aspect of it. They’re part of our team.”
While auto-dimming mirror and automotive technology supplier Gentex Corp. of Zeeland avoided layoffs by focusing on other orders, the company told analysts this month in a conference call to discuss third quarter results that the strike cost between $7 million and $8 million per week in lost business.
As the strike dragged on, Grand Rapids-based Cascade Die Casting Group Inc., a Tier 2 supplier, asked employees to volunteer to take time off, according to company President Pat Greene.
“It’s amazing what that did to help the team pull together, because there’s this guy that wants to take a week off to go see his family or there’s this person who wants to just take a couple of days because they’ve always wanted to catch up on something or because deer hunting is starting,” Greene said. “Things like that have helped to make (the strike) palatable, but it’s still a hard situation to work our way through.”
In the end, about 25 percent of the company’s workforce volunteered to take at least some time off, which prevented Cascade from across-the-board cuts, according to Greene.
“It’s worked out well to be able to do that, but you still suffer,” he said. “You still have all of your fixed costs. You still have the group in the office and everything else that is still there while your volume is down.”
About 80 percent of Cascade’s business is tied to the automotive sector and nearly 30 percent of that share is related to GM products, he said.
Chaos rules the day
An uncertain manufacturing landscape and diminished union ranks made this year’s negotiations between automakers and labor ripe for a standoff, according to David Cole, chairman emeritus of the Center for Automotive Research and chairman of Auto Harvest.
“The important thing is to recognize how dramatically different the industry is today and how it’s been changing very fast in the past few years,” Cole told MiBiz. “Chaos is just a part of the world of auto right now.”
Turbulent international trade policies, a shift in the marketplace from sedans to crossover vehicles, the continued push toward electrification and increased competitiveness from “the internationals” have contributed to an uncertain future for the Big Three U.S. automakers, according to Cole. At the same time, productivity at the plants has increased “dramatically,” and fewer workers are required to meet demand, he said.
“What you would like to do is what you’ve always done, but that doesn’t work anymore,” he said. “The only thing you know for sure is that if you can’t change, you’re dead.”
Analysts believe GM may have been targeted for initial contract negotiations because it had been reacting to industry changes by shuttering manufacturing plants — such as its massive Lordstown, Ohio facility — and laying off workers.
In a practice known as pattern bargaining, the union historically chooses one of the domestic manufacturers for negotiations that serve as a foundation for contracts with the other two companies. Any deal the union strikes with GM may be a tough act to follow for Ford Motor Co. and Fiat Chrysler Automobiles, which have not recently closed plants.
“When they go to the bargaining table, they’ve got to basically match the economics of this deal, but what is the employer going to win at the table in those negotiations?” said Kristin Dziczek, vice president for industry, labor and economics at CAR.
Regardless of when the strike ultimately ends, it will have a delayed effect on the automotive supply chain in West Michigan and nationwide, according to industry experts.
“Usually during a strike, the union keeps what they call essential personnel in plants to keep the boilers and the paint shop and all the equipment maintained and running so that when the strike does end, they can restart pretty quickly, but there were a number of locals that pulled those essential personnel during the strike,” Dziczek said.
As well, GM continued to accept orders from suppliers for a few days after the strike started, meaning the company has built up an inventory to work with when workers eventually return to their posts, according to ADAC’s Hungerford and other supply chain executives.
Both Hungerford and Gentex President and CEO Steve Downing said they estimate suppliers will need to wait about a week after union members return to work to start to feel the effects of the automaker ramping up production.
For suppliers further down the chain, like Cascade Die, the wait will be even longer.
“It would be one thing if they were off a day or two, but after more than a month, it’s going to take some effort for GM to get the plants running again,” Greene said. “The other concern is any distress in the supply chain where if one supplier can’t give them what they need to make a truck, then they’re not making the truck.”
Downing told analysts that Gentex expects to see some permanent erosion in vehicle sales resulting from the strike and GM’s limited inventory. Some sales will push later into 2019 or be delayed into 2020, while others “will probably just fall out permanently.”
“That’s really just based on how consumers consume and it’s the fact that GM vehicles weren’t available and they may have purchased something else or moved on,” Downing said.