Report: Suppliers Asking Automakers for Pricing Concessions Over UAW Strike

Ramifications from the UAW's strike against Detroit automakers was always going to reverberate throughout the industry and suppliers are asking for some concessions. But the reason isn’t wholly down to some of the obstacles created by the recent work stoppages and the long term implications are beginning to mount.

According to a report from Automotive News, suppliers have been under intense financial pressure from the automakers prioritizing just-in-time manufacturing, rolling component shortages, a lopsided labor market, and increasingly high material costs. While plenty of that was accelerated by the global response to the pandemic, a lot of issues actually predate COVID by years.

In response, suppliers have been going to their automaker customers seeking concessions on pricing to help cope with some of the problems they’ve been facing. But industry analysts are claiming they’ve enjoyed limited success and frequently return empty handed — even when it’s the big boys making the request — and that trickles down to make trouble for the smaller fish.

From Automotive News:

In turn, Tier 1 suppliers often have been unable to provide appropriate levels of relief to their Tier 2 suppliers, whose finances have been hit even harder in recent years, creating a situation where the entire supply chain is on edge because of the strike despite sky-high automaker profits, experts said.

"From the customer's position, they might say it's because a supplier isn't managing their business properly or controlling their costs, but that only goes so far," said Dan Rustmann, co-chair of Detroit law firm Butzel Long's global automotive group. "Across the supply base, suppliers have been suffering from increased costs and fixed-price contracts and really having to fight and argue to get any relief.

"And if it comes, it comes very grudgingly."

To be sure, many suppliers have received much-needed relief from automakers or their Tier 1 customers. And despite the significant pressure suppliers have found themselves under after unprecedented challenges in recent years, a wave of supplier bankruptcies that some have feared has not come to pass.

To be sure, many suppliers have received much-needed relief from automakers or their Tier 1 customers. And despite the significant pressure suppliers have found themselves under after unprecedented challenges in recent years, a wave of supplier bankruptcies that some have feared has not come to pass.

While the biggest companies seem to love consolidation, it’s not really benefiting anyone when the foundation of an industry’s ecosystem is crumbling. Bigger companies may be able to swoop in and absorb those businesses. But it’ll be years before they’re likely to have the same expertise and they’re often left bloated.

Some of this is the result of the industry trying to pivot toward all-electric vehicles, resulting in a scenario where automakers need fewer traditional suppliers and have to build relationships with EV-focused businesses located in other parts of the world. Having spoken to plenty of suppliers over the years, many have told me they tried to adapt to EV production only to be confronted with inconsistent orders. There remains a lot of uncertainty in terms of electrification and many suppliers were already feeling raw about wonky production runs before EVs were on the table.

The rest seems to be down to what happened after 2019. Whereas major automakers were immediately supported by the government during lockdowns, smaller suppliers dotted across the planet were not afforded this luxury.

"The cherry on top of the cake for suppliers has been inflation and not getting pricing from their customers to stay whole from a profitability perspective," said Michael Robinet, executive director of Automotive Advisory Services at S&P Global Mobility. "Suppliers have not been able to stretch their legs and make money to make up for all of their issues over the last four years."

Automotive News said that the largest suppliers are now obsessively monitoring the wellbeing of their supportive factories (occasionally offering assistance) as the UAW strike continues. With the union planning to expand its strike beyond the plants initially targeted, there’s a real chance things could get truly bleak for some of the smaller factories supplying parts for the vehicles that won’t be produced.

In the interim, they may not have the kind of reserve capital to wait out the storm. This also means there will be a lull before production ramps back up and staff is rehired.

"This is not a type of industry where you can go from zero to 100 overnight," explained Laura You, a member of Michigan law firm Warner Norcross and Judd's automotive and supply chain industry groups. "If your customer orders have been stopped altogether for a period of several weeks, it will take time to ramp back up."

Industry analysts are recommending (at least in this case) for suppliers to get into contact with automakers now to help minimize future headaches. The last thing anybody wants is for a prolonged strike to wrap up only for workers to return to assembly lines boasting an empty parts bin.

[Image: General Motors]

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