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Market-Based Solutions to Vital Economic Issues
Commentary
Sep 29, 2023

What the UAW Strike Could Mean for the Automotive Supply Chain

Part of our series on Workforce Disrupted

In an unprecedented move, the United Auto Workers began a strike of automakers Ford, General Motors and Chrysler owner Stellantis simultaneously. At midnight Sept. 14, workers walked off the job at three plants – one plant from each of the automakers. As negotiations intensify, there are talks of additional plant closures due to the strike. The UAW is looking to negotiate better wages, end the tiered employment system, and to create more job security in the era of electric cars. As the strike continues, there are concerns about how the work stoppage would impact the automotive supply chain, which is still adjusting to challenges imposed by the COVID-19 pandemic.

We turned to supply chain expert Jayashankar Swaminathan, GlaxoSmithKline Distinguished Professor of Operations at UNC Kenan-Flagler Business School, to discuss how the UAW strike may impact stakeholders across the automotive supply chain.

How might the UAW strike impact the automotive supply chain?

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First and foremost, labor strikes of any kind tend to disrupt production processes and as a result impact the overall supply chain. Labor is an integral part of automotive assembly lines and production cannot happen without appropriate labor on the line. While there are some parts of the factory that may be highly automated, most of the factory’s operations depend on close collaboration between machines and humans to produce vehicles. Strikes of this nature are therefore detrimental to the overall production and efficiency. Having said that, there is finished goods inventory in the channel as well as at the dealerships that provides some buffer to soften the impact on the customer.

The UAW strategy is to target the three automakers at once, beginning with work stoppage at three plants in three states and then expanding. (The strike expanded to 38 GM and Stellantis plants in 20 states Sept. 22 and to additional GM and Ford plants Friday.) As the strike continues and more workers walk off at more plants, is there a tipping point when this strike could do real and lasting damage to the automotive supply chain?

Absolutely. When the UAW strike was limited to only three factories, the manufacturing firms may have been able to employ some temporary workers to keep those lines running, albeit at a slower pace. But as the strike continues and expands, the work stoppage has the potential to impact the supply chain in a significant manner. On one hand, suppliers to these manufacturing plants will also need to shut down operations since their parts inventory levels would have reached the optimal threshold, and those parts are not getting pulled into the manufacturer’s final assembly process. On the other hand, channel inventory of finished vehicles is going to dry up since there is no new production and customers could see shortages in automotive dealer lots.

The automotive supply chain was strained during COVID-19, and we saw availability of new and used cars drop drastically and prices rise. The United States auto industry has since recovered and has even surged its production. Coming off the heels of the pandemic, might this strike produce some of the same tumultuous effects?

If the strike continues on and severely limits production and depletes pipeline inventory in the channel and at dealerships then we are going to have similar issues to those we observed at the height of the pandemic. Due to shortages at the dealer level, prices could go up (since demand will outstrip supply). And even once the strike has ended, getting to back to full production capacity could take some time.

Will consumers feel the effects of supply chain disruptions caused by the strike?

Not right away. But if this continues for a few more weeks, then effects will start to be felt at the consumer level.

How might the strike hurt smaller automotive suppliers who are not directly impacted by the work stoppage?

It could be devastating for smaller suppliers if this continues for an extended period because smaller firms in the supply chain rely on a smooth flow of demand from their customers – the big manufacturers. In the worst-case scenario, if the strike continues for months that could mean financial insolvency for some smaller suppliers.

How do companies address supply chain risks from strikes like this one? Could these solutions ultimately hurt or help workers?

Large firms mitigate these risks with different types of measures – for short disruptions they may have additional finished goods inventory or a pool of temporary workers that are not with the union. For the medium term they may have business continuity insurance as well as additional production flexibility in their network so that another plant (or multiple other plants) could help. Clearly, having such disruptions increases the costs for the manufacturer. Mitigation plans also impose additional costs. The amount of money that they can therefore channel to worker wage raises is reduced. Meanwhile, workers have a vital role and are key enablers for an organization’s success. It is imperative that organizations provide their workers adequate compensation and keep their morale high to avoid such disruptions and to succeed in the marketplace.


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