UAW strikes threaten already vulnerable auto parts suppliers

As the United Auto Workers’ strike against Ford Motor, General Motors and Stellantis moves through its second week, the economic effects are beginning to ripple through the U.S. automakers’ vast supply base.

While the automakers and their larger Tier 1 suppliers likely have the resources to weather an extended work stoppage, there’s a network of smaller suppliers that could be hit hard by a prolonged strike — or even go out of business entirely.

That network includes about 5,600 companies — most in the upper Midwest — that provide seats, suspension components, wiring harnesses and thousands of other parts used in brand-name vehicles. It’s substantial, employing an estimated 871,000 workers, according to the American Automotive Policy Council.

Those smaller suppliers have only recently recovered from the shocks of the Covid-19 pandemic and the resulting global shortage of semiconductors. Now, they’re coming under pressure to increase their own workers’ wages — in an environment where higher interest rates have made it more costly to borrow money — and staring down the threat of ongoing auto workers’ strikes.

“We represent a lot of suppliers that are very, very concerned about where this is going,” said Dennis Devaney, a Detroit attorney who has represented both GM and Ford and who once served as a board member for the National Labor Relations Board.

Devaney noted that some suppliers are still struggling with supplies of semiconductors and other components, in part because their Chinese counterparts are still recovering from Covid-related shutdowns and other logistical issues since the global health crisis.

“The last thing they need from an economic perspective is a strike by the UAW,” he said.

Some of the small suppliers may only be able to hold out a few weeks if the automaker factories they support are struck.

Harbour Results, a manufacturing advisory firm near Detroit, estimates that about 30% of those smaller suppliers were in poor financial shape — or “unbankable” in Harbour’s view — as of the end of 2022, with another 21% characterized as struggling.  

The Motor and Equipment Manufacturers Association, or MEMA — a trade group that represents auto suppliers — has asked the White House for aid, writing in a Monday letter to President Biden that it was particularly concerned about smaller suppliers with annual revenues of less than $200 million.

“These suppliers are in every state throughout the U.S. and are often the largest employer in a county or region,” MEMA wrote. “In a recent industry survey, half of these suppliers were identified as financially distressed.”

MEMA asked the president to use existing authority to direct the Small Business Administration to provide low-interest loans to suppliers to help them meet payroll, so they can restart quickly once the strike is resolved.

“Note that it only takes one component that is unavailable from a supplier to shut down an entire production line,” the association wrote. “We urge you to act now to support the vehicle supplier community.”

In the face of prolonged strikes, some smaller suppliers are already cutting workers or announcing plans to do so.

But layoffs could expose suppliers to another risk: In a still-tight labor market, those laid-off employees might be able to find other jobs quickly, meaning they might not be available to come back once the UAW’s strikes are resolved.

LM Manufacturing, which makes seats for vehicles including the Ford Bronco, temporarily laid off about 650 workers last week in response to the UAW’s strike at the Detroit-area Ford plant that builds the Bronco. The Detroit-based company is a joint venture between privately held LAN Manufacturing and Canadian auto supplier Magna International, a Tier 1 heavyweight.

As of Tuesday, two additional Detroit-area auto suppliers had already filed notices of potential layoffs with the state of Michigan.

Parts maker CIE Newcor, a subsidiary of Spain’s CIE Automotive, filed a notice with the state of Michigan on Sep. 14 saying that it will lay off nearly 300 workers early next month if the strike continues. Privately held Eagle Industries, a maker of molded foam products for autos, said on Sep. 21 that it may soon need to lay off an estimated 171 of its 230 employees “due to evolving business circumstances.”

“For every GM job, there’s six others in the economy that depend on us running,” GM CEO Mary Barra told CNBC. “We’ve got to get back to work.”

Larger publicly traded suppliers such as Lear Corp., Dana, Magna International and Adient aren’t expected to come out of the UAW’s strike unscathed. However, they haven’t experienced widespread impacts just yet.   

Barclays previously identified Dana as one of the most impacted suppliers from the first round of UAW strikes that halted production at one assembly plant each for the Detroit automakers, beginning Sept. 15. The Ohio-based company — a supplier of axles, driveshafts, transmissions and other parts — makes components for several vehicles impacted by the strikes.

Dana, which did not respond for comment, has reportedly announced temporary layoffs of hundreds of Ohio workers due to striking UAW members at Jeep and Ford plants.

If the UAW’s strike drags on and expands further past its current three assembly plants and 38 parts and distribution centers, Wall Street analysts believe that’s when larger publicly traded suppliers will really start to feel the strain.

Some analysts also warn that automakers may put additional pressure on suppliers to lower costs in an effort to offset expected multibillion increases in any tentative agreements reached by GM, Ford and Stellantis, also known as original equipment suppliers, or OEMs.

“This creates another tension point in the in the debate in OEM-supplier commercial discussions,” Barclays analyst Dan Levy told CNBC. “There’s some suppliers that probably legitimately can push back but there’s also probably some suppliers where it does create a little more complexity.”

Historically, automakers have raised prices on new vehicles to offset higher labor costs and protect margins, but inflation as well as higher commodity costs have already pushed vehicle prices up, leaving little room for upward movement.

Barclays expects the new UAW contracts to add roughly $2 billion to $3 billion of incremental costs annually to the automakers’ balance sheets.

Spokespeople with Lear, Magna and Adient did not immediately respond for comment.