Key Impacts and Strategies for Suppliers Affected by the Ongoing UAW Strike

The United Auto Workers Union strike against the Detroit Three automakers that began on September 15^th continues with no immediate resolution in sight. The UAW expanded the strike on Friday September 22^nd when some 5,500 UAW workers walked out at 38 parts distribution sites across the U.S. belonging to GM and Stellantis following stalled negotiations with the UAW. On September 26^th President Biden joined striking autoworkers at a GM facility in Detroit and on September 27^th former President Trump held a rally at a metro Detroit automotive supplier. On Friday, UAW President Shawn Fain expanded the strike further, calling on an additional 7,000 UAW workers across Ford and GM to strike at a Ford assembly plant in Chicago, Illinois and a GM assembly plant in Lansing, Michigan. With the announcement, approximately 25,000 UAW workers in total have walked out at GM, Ford and Stellantis facilities. So far, the economic toll of the strike has been estimated at more than $ 1.6 billion, including at least $ 400 million in losses to the OEMS. The estimated length of the strike remains difficult to determine, with some analysts raising the possibility that the strike could last well into the fall. Automotive suppliers need to be ever vigilant in monitoring their operations and taking measures to mitigate the effects of the ongoing UAW strike.

What the UAW Strike Means for Suppliers

The longer the strike continues, and the deeper it cuts, demand for parts and materials will decrease and cash flow to automotive suppliers will be negatively impacted. Suppliers should consider: accelerated collection of receivables (including factoring); shipment of finished goods inventory in order to convert working capital assets to cash (including inquiring whether customers will accept finished goods in excess of EDI releases); deferral of payables where appropriate and clear and communications with lenders and customers to ensure their financial condition is known and needs are met to avoid a significant distress situation.

Again, the length and depth of a work stoppage will dictate the specific workforce actions and accommodations to be made, however, a permanent loss in workforce availability in the current tight labor market must be considered in the context of when production resumes. Suppliers should evaluate the implications of the UAW strike on their labor force, making sure to consider that the strike may continue for a prolonged period.

We are already seeing the ripple effects of the UAW strike, as supply lines outside of the three targets are being affected and, in some cases, shut down. Suppliers should continue to consider and appropriately manage output to prevent an oversupply of outdated or soon-to-be outdated parts when OEM production eventually resumes.

Suppliers should also take particular care to distinguish between projected forecasts and firm orders. Now that a strike has occurred, suppliers should anticipate that projected forecasts may vary considerably from firm orders. Suppliers should manage their production capacity and lead times to sub-suppliers accordingly and evaluate if and when the parties’ terms dictate when projected forecasts become firm orders.

Preparing for a Restart of Production After the Strike Settles

Suppliers should continue to keep in mind that the OEMs are likely to insist on an aggressive production schedule when production resumes to make up for the downtime. As suppliers are aware from the last several years, production shutdowns and restarts can impose significant costs and suppliers should continue to think about how to best mitigate material and labor costs once production resumes. Suppliers also need to fairly allocate their resources in order to meet customer demand. Suppliers should remain in communication with their customers to make clear both the lead time and costs that will be needed for restart after a shutdown.

As the industry continues to deal with the effects of the UAW strike, as well as the continued transition towards electrification and alternative fuels, Foley is monitoring developments and keeping stakeholders up to date.

Disclaimer

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.