A week into a historic simultaneous UAW strike against all three Detroit automakers, investors are exploring the potential impact an extended work stoppage could have, not only on OEMs, but on a supply chain still recovering from pandemic-era disruptions.
The UAW strike fund, estimated to total $825 million, could potentially fund $500 weekly strike pay for the union’s 150,000 active workers for 11 weeks. However, the UAW’s targeted strike approach – striking just a few manufacturing facilities at a time, with just 12,000 workers affected so far – could seriously prolong the dispute, potentially resulting in greater financial impacts than the six-week and eight-week-long strikes of 2019 and 1998. GM lost $3.6 billion in the 40-day strike in 2019. A protracted, multi-month strike could quickly escalate the pain for automakers, and for suppliers.
Since the last strike in 2019, the automotive supply chain has already endured a series of extraordinary challenges starting with the impact of the pandemic in 2020. The significant supply chain disruptions brought on or exacerbated by the mandated pandemic shutdowns have resulted in increased costs, greater fragility of the supply chain and often higher investments in working capital. As a result, many smaller tier-2 and tier-3 suppliers have seen significant compression in profit margins even as interest rates have surged more than 500 basis points from-2019 levels. The result will likely be further downward pressure on profits in the fourth quarter, or in some cases even starting in the third quarter.
Perhaps of greater importance than profit margins will be the impact of the strike on suppliers’ liquidity and financial stability. Investors will be keenly focused on balance sheets and operating cash flows as the strike progresses. Management teams must effectively manage liquidity, in some cases drawing on credit lines to ensure cash is available when needed. Effective working capital management will also be essential, as will managing and potentially deferring capital investments as the impact of the strike becomes clearer. Investors will likely take a close look at the platforms directly affected by work stoppages and follow the supply chain to see which suppliers are most at risk.
Small and mid-cap public auto suppliers should maintain a proactive approach to communicating with investors, employees and suppliers during this critical time. At Lambert, we can work alongside your team to develop the messages and communications strategies that can help ensure your organization emerges from these near-term challenges in a stronger position to grow and generate the best possible results for all of your stakeholders.