Plastics face short-term automotive challenges, long-term opportunities, analysts say

Indianapolis — Plastics processors will see their share of the automotive manufacturing industry grow in the years and decades ahead as lightweighting becomes more important during the transition to electric vehicles.

But, in the short term, the uncertainty of the current United Auto Workers strike is leaving the sector with potential vulnerability, representatives from business advisory firm Plante Moran said Oct. 5 during the Benchmarking and Best Practices Conference in Indianapolis.

While the UAW only has so far targeted specific plants operated by General Motors, Ford and Stellantis, the potential for wider work stoppages hangs over suppliers.

Ted Morgan and Mark Barrott are both partners with Plante Moran, which has a significant practice working with plastics companies.

"Plastics processors have to have a very good understanding of what plants are striking and how it impacts the production releases," Morgan said.

"The further you get down the food chain, like a Tier 2 or Tier 3 supplier, and if you are a plastics processor, oftentimes they don't know. They literally don't know where their parts are going, particularly if they are in under-hood applications. They could go on multiple powertrains," he said.

And that lack of knowledge, while not critical during the good times, is a weak spot during difficult periods.

"You just have to really keep an understanding because that can help you forecast what your production will be as these plants continue to stay down," Morgan said.

"In stable times, it doesn't matter if you are a Tier 2 or Tier 3 supplier," he said. "Now it matters."

"You have to keep a very good pulse on where your products are going. That's a very-easy-to-understand concept if you know you have already seen production releases down based on vehicles not being produced. But I think they need to go a step further and you have to know the nameplates you are on for future vehicles that could be down through future strikes," Morgan said.

Morgan said most plastics processors serving the automotive industry do not have a disproportionate amount of their work concentrated on one vehicle, so that flexibility helps mitigate risk.

Past UAW work stoppages have often targeted a single automotive maker, inflicting pain on one brand while allowing workers to continue on the job at other companies. But this time, the UAW is targeting specific plants across the industry, trying to gain leverage by stopping production at key locations. This approach also can impact other locations reliant on those struck sites, causing companies to then lay off staff.

"This is a very rifle shot affair. This is targeting very strategic programs and very strategic facilities. If you are not impacted, you are probably having a higher anxiety about the industry, but you are still producing and you are still getting paid," Barrott said at the conference organized by the Manufacturers Association for Plastics Processors.

"For the most part, the very high-volume programs are not impacted. It's starting to creep a little bit, but right now it's not," he said.

Barrott does see some vulnerability for plastics processors of a certain size that might get caught in the crossfire — companies in the $50 million to $75 million range in annual sales that make commodity-type parts.

If these firms are impacted by a work stoppage at one of their customer locations, then other risk-adverse automakers could see financial trouble mounting at the plastics firm and decide to just move production of their parts to another supplier, he explained. "We think that's problematic for the industry because you are probably not that critical to the OEM," Barrott said.

Plastics, overall, currently account for about 6 percent of a vehicle's weight, and that is expected to increase to 15 percent by 2040, when EVs are expected to be more dominant in the market, Morgans said.

While EVs have a simpler design due to the elimination of the engine and use of a single-gear transmission design, the large batteries used in the vehicles add weight. Finding more ways to use plastics instead of metals in these vehicles will help lower overall weight, allowing EVs to get more miles per charge.