How will the United Auto Workers strike impact automotive companies?
The UAW is not on its fourth day of strikes. This is on the back of several profitable years for the Big Three, including an announcement by Stellantis that they are buying back $500M of their stock this week. (This is not a good look going into union negotiations…)
The Big 3 are in pretty good shape in terms of inventory – many have 50-40 days of inventory, and for popular models like trucks and SUV’s, up to 70 days of inventory. This is also not likely to impact Tier 1 suppliers, who produce for other companies like Toyota, BMW, Honda, and Hyundai. However, things will start to cascade if the strike lasts more than a few weeks – – meaning less demand for things like steel, less demand for paint, less demand for plastics. And so we’ll start to see a cascade further upstream with Tier 2, and Tier 3 suppliers. These smaller suppliers, especially small tool and die shops, and plastic injection plants, may start to see workers laid off. This rolling effect could dampen the economic outcomes for the country.
EV production could also be impacted. There is less inventory of these models, and EV batteries are still a problem with many suppliers. If the strike continues, it could also impact inventory on dealer lots, and we would likely see an increase in prices, and possibly used car prices as well as supply cannot keep up with demand.
The strike could also impact EV industry competition. Tesla is surely going to exploit this situation – and Toyota stock was up $50 a share last week, as they also produce a lot of EV’s.
Let’s not forget the supply chain or spare parts. A lot of the plants produce spare parts for repair and warranty work. these are often distributed through Big Three distribution arms – which are also often unionized. So there could be an impact on dealerships getting parts, which could delay part repairs.
There is also a risk for the UAW, who are asking for more than 40% wage increases. There is a significant amount of automotive manufacturing in Mexico in places like Pueblo and Saltillo – and with the free trade agreement, the Big Three may begin moving more production to these areas, which would reduce the union’s presence in the US. Although there has been some big funding by the Biden administration. This is intended to promote domestic manufacturing, so this is unlikely to go off shore. However, I the strike continues to impact revenue, there is no guarantee this won’t happen.
The last GM strike in 2019 lasted about a month. This is different – the nature of the rolling, unpredictable strikes for all the of the Big Three has them on their heels. There are negotiating risks on both sides.