Analysis: Parts makers risk cash crunch in a Detroit auto strike

Lear

24/08/2023 14:49

By Bianca Flowers and Joseph White
       DETROIT, Aug 24 (Reuters) - Many smaller U.S.
manufacturers that supply parts to the Detroit Three automakers
will be at risk if a long United Auto Workers strike shuts down
assembly lines starting next month, industry executives and
analysts said.
    Many small and medium-sized auto parts manufacturers are in
a weak financial condition after the shock of pandemic shutdowns
and subsequent semiconductor shortages that depressed vehicle
production at General Motors  GM.N , Ford  F.N  and Stellantis
NV's  STLAM.MI  North American operations for much of the past
three years, industry experts told Reuters.
        A strike by the UAW is not a certainty. But the
substantial wage and benefit gains that 
    UAW President Shawn Fain
     has demanded, and the 
    intensity of the campaign
     the union has mounted, have Detroit industry executives and
analysts bracing for walkouts next month. The UAW staged a
42-day strike against GM in 2019 before reaching a new contract.
  
    With regional banks tightening credit, some smaller parts
makers could run out of cash or struggle to re-start production
once the Detroit Three and the UAW come to terms and assembly
lines roll, industry experts said. 
    The auto parts manufacturing industry employs 4.8 million
people, according to the Motor Equipment Manufacturers
Association trade group. Many of those jobs are in Michigan,
Ohio and other Midwestern U.S. states, as well as the Canadian
province of Ontario.
    Small suppliers are critical to automakers' supply chains.
If even one bracket or bolt or plastic interior part doesn't
arrive at an assembly line, production could stop. Automakers
have spent much of the past three years dealing with supply
chain disruptions, and are still working to recover.
    "There's no question, there will be a strong ripple effect
down through the supply chain," said Daniel Rustmann, a
shareholder in Detroit's Butzel law firm who works with auto
suppliers. "It could be the straw that breaks the camel’s back."
    Some suppliers are already securing for a storm.
    "Our revenue is going to take a hit of 10 to 20%," said Todd
Olson, chief executive of Twin City Die Castings Co in
Minneapolis, which manufactures an array of metal components for
automakers. 
    Olson said he is working to keep inventory in check. A short
strike would not force much change in Twin City's operations. A
longer strike would mean laying off some workers. But that comes
with risks because of the low unemployment rate, he said.
    "If it's three months or something they're gonna have other
jobs right? They're not coming back," he said.
    Laurie Harbour, president of Harbour Results, said she is
concerned by the number of her firm's auto parts-making clients
who are not yet preparing for UAW walkouts. 
    About 30% of a population of 400 companies whose 2022
financial data Harbour Results studied "is what we call
unbankable. Their debt levels are too high and they are not
turning a profit," Harbour said. The share of troubled companies
in the latest survey is up from 20% based on 2021 data. 
    Many companies could be in worse shape now because
production volumes remain below pre-pandemic levels, while
borrowing costs and other expenses are higher, she said.
    UAW's Fain has said Sept. 14, the end of the current UAW
master contracts with the Detroit Three, is a "deadline, not a
reference point." UAW members are voting this week to authorize
strikes if new agreements are not concluded, and UAW leaders
organized what they called "practice pickets" at certain plants
this week.
        The 
    union is seeking
     an end to a wage system that pays new hires less than
veterans doing the same work, a 40% increase in hourly wages,
restoration of cost-of-living adjustments and reinstatement of
defined benefit pension plans for all UAW employees. 
  
        Automakers and the UAW agreed during the 2007 financial
crisis to end pensions for newly-hired workers, replacing them
with individually-managed 401(k) accounts. Restoring pensions
could add significant new liabilities to automakers' books.
  
    Smaller Detroit Three suppliers will not have smooth sailing
once the UAW contract talks are concluded, said Peter West of
Actify, a firm that advises suppliers on automotive program
management, and Mark Barrott of the Detroit consulting and
accounting firm Plante Moran. 
    Suppliers face demands to invest in engineering and
production equipment for a tsunami of new vehicle programs over
the next few years as automakers develop new electric vehicles
and try to sustain profitable combustion models, West said in an
interview.
    Over the longer term, however, automakers will be trying to
cut the number of parts they order and simplify product lines,
Barrott said.
    "It's not going to go smoothly," he said.
    

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
UAW leader says Detroit Three automakers 'still not serious' in
contract talks     urn:newsml:reuters.com:*:nL1N39Y23M
Price of a strike at the Detroit automakers: $5 billion -study  
  urn:newsml:reuters.com:*:nL1N39Y1E5
UAW workers may vote on strike at Detroit Three automakers next
week     urn:newsml:reuters.com:*:nL4N39W3NT
Biden urges automakers, union to make 'a fair agreement'   
 urn:newsml:reuters.com:*:nL1N39V1G3
As US navigates summer of strikes, Biden's top labor adviser
exits, source says     urn:newsml:reuters.com:*:nL1N39P16X
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting By Bianca Flowers in Chicago and Joseph White in
Detroit, Additonal reporting by Shivansh Tiwary
Editing by Nick Zieminski)
 ((Joe.White@thomsonreuters.com;))