Supplier concerns linger after UAW strike

The UAW strike that halted General Motors production for 40 days could have a lingering effect on many suppliers in North America. It might also serve as a taste of things to come.

Among those affected by the halt in GM shipments: American Axle & Manufacturing Holdings Inc., Tenneco, Aptiv, Lear Corp., Nemak, Valeo, Faurecia and Magna International Inc.

As a result of the strike, 130 suppliers reported temporary layoffs of 17,000 U.S. employees, according to the Original Equipment Suppliers Association. And many major suppliers said they expect financial fallout into 2020.

The immediate impact was lost sales revenue, followed by reductions in net income forecasts for the year.

In its third-quarter earnings call, seating and electronic systems supplier Lear said the strike meant $525 million in lost revenue. Electronics supplier Aptiv said it anticipates a hit of around $250 million to its 2019 net sales. At driveline and drivetrain supplier American Axle, where GM represented 41 percent of net sales last year, the labor halt took $57 million out of third-quarter sales.

The losses will compound challenges for an already distressed supply chain as it copes with declining U.S. vehicle sales, Mike Wall, auto analyst at IHS Markit, told Automotive News.
Suppliers will be rebuilding into 2020 to make up some of the lost volume and offset the negative impact of the strike, Wall said. But he added: “There’s going to be some amount that doesn’t get made up.

“You’d be hard-pressed to find a supplier that wasn’t touched in some way, shape or form,” he said.

Daron Gifford, a partner with consulting firm Plante Moran, said the short-term challenges suppliers are facing as a result of the strike mirror longer-term issues the industry faces moving forward.

“For the most part, the suppliers can retrench and come back,” Gifford said. But longer term, he predicted, suppliers might decide to decrease the GM portion of their product mix.

The real challenge for suppliers is that the financial hit occurs as they are being expected to plow more money into new technologies and new roles.

As automakers attempt to reposition themselves as technology companies and make plans to outsource production to focus on higher-volume activities internally, suppliers are struggling to retain talent and capital, Gifford said.

“I think you’ll see more and more of the suppliers taking on more and more responsibility from the OEMs.”

Ray Telang, head of the auto practice at PwC, said he expects the GM strike to serve as a harbinger of tougher months ahead for suppliers. “They’re going to have to be nimble enough to address the lower volumes and the lower revenue rates,” Telang said.

Gifford said the strike ultimately shows how high risk it is for suppliers to operate amid the industry’s disruption.

IHS Markit’s Wall observed that the global supply chain is navigating challenging times, especially as consumers hesitate in their purchases.

“It’s going to be up to all the automakers and the large Tier 1s to be monitoring the state of their supply chain,” Wall said. “If we can keep a level of health on the consumer side, that certainly would be a positive and that’s really what I think suppliers need to key in on.”