UAW Strike Threat Looms: “How Suppliers Can Navigate the Latest Strike”

It seems like only yesterday that we were creating a similar roadmap for suppliers to navigate through a 2019 GM strike. Today, the stakes are at the highest with U.S. automakers facing more challenges than ever, with electrification, a slew of product launches, risky battery plant capital investments, and geopolitical issues; the list goes on and on.

The strike deadline is just around the corner, set to expire at midnight on September 14^th. The two sides seem worlds apart, with the United Auto Workers (UAW) seeking more than a 40% increase in wages and benefits. If the UAW were to succeed in its efforts, more union workforce reductions will take place, as the U.S. automakers will have no choice but to look at ways to compete through automation, and or outsourcing certain activities to other suppliers locally or globally. The big three U.S. automakers no longer hold the upper hand in market share. In fact, they are in for a fight for their long-term viability. You can argue that the automakers are reaping record profits, so they can afford to pay up, but the profits have been generated during the most unusual monetary policy in the history of the United States.

Record money supply following COVID led to historically high demand; at the same time, supply due to COVID and geopolitical forces were crushing the supply chain, creating a period of record profits on less volume. However, is this scenario likely to continue? Most likely not. We will and are returning somewhere closer to normalcy, and competition will get fierce.

A whole story could be told on the ramifications of the strike, but we will have to table that for another time. We need to focus on how suppliers can develop a defensive contingency plan and think about offensive tactics in the event of a strike. Hopefully, suppliers have tactical plans underway, but here are a few key points to consider for your planning purposes.

Defensive Contingency Planning Roadmap

Communicate

• 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.

Conserve Cash

• 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.

Contract Review

• Review significant contracts with counsel to know your legal risks and rights under a prolonged strike.

Offensive Roadmap

Operations

• 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.

Supply Chain

• 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.

Finance

• 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

• 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.

The path forward for suppliers will be a slippery slope, to say the least. What great companies do is plan, plan, and plan! 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.

08/14/2023