The prolonged auto worker strike in Detroit is sending shockwaves across industries, both domestic and international. A landmark strike led by the United Auto Workers (UAW) against the "Detroit Three" automakers is amplifying concerns over economic fallout, as it enters its 36th day, eroding over $7 billion from the economy.
Erik Gordon, a distinguished professor from the University of Michigan, weighed in, "The damage from the strikes will last long after UAW members return to work." The ripple effect is palpable, as workers, facing reduced strike pay, remain frugal in their expenditures.
Major companies like Delta Air Lines have already felt the tremors. The airline behemoth disclosed a "significant" cutback in its Detroit operations due to the strike. Similarly, industrial giants such as PPG Industries and Union Pacific have factored in profit hits for the current quarter, albeit of varying magnitudes.
But it's not just blue-chip companies that are reeling. The auto supply chain, underpinning trucking firms and part suppliers like General Motors, Ford Motor, and Stellantis, is particularly vulnerable. Over 34,000 workers have shelved their daily tasks, leaving companies in a lurch. "Trucking companies deliver a lot of the components that are assembled into cars. They and their workers will suffer," warned Gordon.
As the quarterly report season looms, all eyes will be on major parts suppliers such as Aptiv, Magna International, Lear, and American Axle. Analyst John Murphy of BofA Global Research offered, "Suppliers are expected to feel the pinch from lower volumes in the fourth quarter, but the pain will not be equally spread." Given their varied exposure levels to the Detroit automakers, the impending financial stress could differ. For instance, while Lear and Magna sport double-digit sales exposure, Aptiv's vulnerability sits between 8%-9%.
In a startling revelation, the Anderson Economic Group posited a loss of around $2.67 billion in supplier wages and earnings during the strike's fourth week. Echoing these sentiments, French car part manufacturer Forvia flagged potential layoffs, anticipating a larger sales slump due to the strike. On the other hand, Autoliv, a global front-runner in car airbags and seatbelt production, has yet to face significant disruptions but remains wary of future ramifications. CEO Mikael Bratt remarked, "When we have these kind of disturbances...in the global flows it's not good."
The UAW's aggressive stance, demanding substantial wage hikes and better benefits, has put the Detroit automakers in a bind. Investors are also wary, marking a decline in shares since the strike's inception.
Further amplifying the concern is the recent MEMA Original Equipment Suppliers survey, which disclosed that almost 40% of vehicle suppliers, a sector that employs nearly 900,000 workers, have already initiated layoffs. As the disruption prolongs, over 30% of these suppliers foresee a 1-3 week buffer to reboot idled production. Financial stress is another looming challenge, with a whopping 80% of suppliers anxious about the financial health of their sub-suppliers.
Adding to the narrative, Ford executives, including CEO Jim Farley and Ford Blue President Kumar Galhotra, have voiced their frustration over the enduring deadlock.
In a bid to mitigate the distress, MEMA is urging the federal government for financial aid, suggesting measures like low-cost loans and an emergency training program.
With no immediate resolution in sight, this Detroit standoff underscores the intricate web of interdependencies in the global economy and the repercussions of industrial unrest.
