The United Auto Workers Union and the Big 3 Automakers failed to reach an agreement on a new contract prompting a “stand up” strike that could escalate an already unprecedented situation for the Big 3 U.S. automakers. Currently, around 13,000 workers have walked off in Michigan, Missouri, and Ohio. Given the strategic nature of the “stand up” strike, that number could grow to be much larger.
We reported previously as the strike was looming, that the Big 3 no longer hold the upper hand in a dynamically changing automotive market. In fact, they are in for a fight for their long-term viability. The UAW and others would argue that automakers are reaping record profits, so they can afford to pay up, but tier-1, tier-2, and tier-3 suppliers may not be in the same situation.
Suppliers should be prepared for their businesses to be impacted by the strike and work quickly to formulate a defensive contingency plan to mitigate that impact. Suppliers should also think beyond the immediate and try to view the entire supply chain through a wide lens to discover vulnerabilities.
Our automotive specialists work with clients every day on these strategic planning matters and have come up with a high-level defensive roadmap with some critical steps to keep in mind.
Defensive Contingency Planning Roadmap
- Keep all employees informed about the business and personal impact that could be borne during a strike.
- Communicate with key stakeholders, including lenders, legal counsel, and outside investors, regarding your contingency plans.
- For certain suppliers, it will mean compiling 13-week cash flow models. Take the time to really understand revenue risk, variable and fixed costs impact on weekly cash flow.
- Prepare scenarios with layered layoffs, but be conscious of layoff impact, who might not return.
- Look to defer payables and expenses where possible.
- Prepare an inventory analysis of what can be done to move slow-moving or excess inventory to raise cash.
- Full-court press on collecting receivables, especially those customers that are slow to pay.
- Review significant contracts with counsel to know your legal risks and rights under a prolonged strike.
- For companies with liquidity, look at operational plans that utilize resources to continue to produce product through the strike to keep labor employment and reduce the risk of flight if they were to be laid off.
- Discuss ways to drive efficiency and performance on the shop floor with ideas from team members on the front line. Think about bottom-up ideas vs. top-down; you might be surprised by what you learn. This is an exercise our strategy team has utilized, and it has delivered remarkable improvements in performance and retention.
- With downtime, take a hard look at deferred maintenance, training, and updating bills of materials.
- With the historical increase in the cost of manufacturing inputs, now is the time (if you have not already gone through this exercise) to analyze your vendor base and look at your top twenty-five spend, and see what alternative sources may be available for reduced costs, better quality, or delivery times.
- Revisit costing models to ensure your quoting rates are up to date. Our costing team has assisted clients in finding ways to reduce costs through supply chain strategies and/or pricing techniques to win new business.
- Strategy is often overlooked as everyone thinks they know the company strategy, but do all employees really know where you are headed? Use downtime to focus on critical products, markets, and customers. Our strategy team has been emphasizing the importance of diversifying into other industries and markets to reduce exposure in the automotive space.
Building a solid plan will help your company survive and thrive in an ever-changing automotive supplier market. Our automotive team at UHY will be monitoring the ongoing situation and has been helping our clients develop contingency plans and adjusting strategies to help mitigate some of the risks associated with industry volatility.