Auto suppliers warn of more layoffs, spending cuts from UAW strike

As the UAW strike against the Detroit 3 enters its sixth week, suppliers are cutting back on capital expenditures and warning that many smaller Tier 2 and Tier 3 parts makers could soon be approaching a financial tipping point.

"I think [UAW President] Shawn Fain understands that if this goes any deeper, it's going to cause some permanent damage to the supply chain because the impact has been real and is increasing," a source at a large Tier 1 supplier told Automotive News. "We're talking about millions of dollars per week in an impact to our performance, and we're just one supplier."

On Oct. 11, the UAW expanded the strike to include Ford's large Kentucky Truck Plant in Louisville, Ky., which builds highly profitable heavy-duty pickups and large SUVs for the automaker.

Sam Fiorani, vice president of global vehicle forecasting for AutoForecast Solutions, said the walkout is likely to impact smaller suppliers to Kentucky Truck particularly hard moving forward. That's because the volumes at the plant are so high that many supplier operations depend on that business for most or all of their sales, he said.

"If they're not calling on parts, they're going to be hurt real quick."

A source familiar with the UAW's strike impact said last week that roughly 15,000 employees at roughly 100 North American suppliers have been laid off since the work stoppage began Sept. 15. Meanwhile, the Motor & Equipment Manufacturers Association said last week that 39 percent of companies it surveyed have had to lay off workers because of the strike, and that figure could rise to 70 percent by the end of the month if the strike continues.

"I expect to see an increase in layoffs looking ahead because with Kentucky Truck going down, that's a very large facility," said Julie Fream, CEO of the association's Original Equipment Suppliers group. "The biggest issue suppliers are facing is the unpredictability of what's happening. That creates a lot of challenges for them in terms of planning because they can't identify a certain path that will allow them to best use their resources."

But layoffs are a measure of last resort for auto companies. Many fear that out-of-work employees will find other jobs and suppliers won't have enough staff to get production ramped up when the strike ends.

Some suppliers have sought to minimize layoffs by having employees work on plant maintenance and upgrades or by implementing training programs to keep employees engaged despite reduced production.

But the longer the strike lasts, the fewer options there will be as training programs end and cash flow dries up.

"I think you're going to start seeing more [layoffs] toward the end of this month as this thing keeps ticking on," said Laurie Harbour, CEO of Harbour Results Inc., which monitors mold makers in North America.

Harbour said many of the affected suppliers she works with have seen sales volume decline by 10 to 15 percent during the strike. Many companies have found that manageable so far, but they are worried about the impact of a prolonged strike, she said. Suppliers are unsure of how proactive they should be in implementing cost-cutting measures such as layoffs, furloughs and reductions in capital expenditures.

"What if this goes until Christmas? Do suppliers need to start thinking of cost-cutting measures now, just to be prepared? There's no federal funding out there to help like there was during COVID," she said.

The Tier 1 supplier source said the company so far has resorted to only "minimal" layoffs. But the number will likely rise if the work stoppage continues for another week or two.

The supply base has avoided the earlier "catastrophic" scenarios it feared if the UAW struck every Detroit 3 plant simultaneously. But the strike could have an impact on supplier finances well into next year, and into 2025 as well, even if it were to immediately end, the supplier source said.

"We're looking at things that we have to make deposits on in 2024 that may have to be canceled," the source said, adding that the company is also altering its capital investment plans.

Smaller suppliers, particularly Tier 2 and Tier 3, are generally at greater financial risk than their Tier 1 counterparts. Harbour said many of those smaller companies lack visibility into the health of their own subsuppliers, making the risk and uncertainty they face with the strike more pronounced.

"It gets less and less transparent the further down the road you go," she said. "The tool shops get super frustrated because they try to call, and their customers won't say much, or they'll say the OEM isn't saying anything.

"When Tier 1's ask for financials from these smaller shops, they're leery to give that data. They're worried that if their numbers are bad, they're going to be re-sourced."

Fiorani said he is urging automakers and large suppliers to develop more of a "symbiotic relationship" with the smaller companies in their supply chains and assist those that are in financial peril.

"The vehicle manufacturers and the larger suppliers should take a cue from the Japanese industry, where they help struggling suppliers below them," he said. "Making sure that Tier 1s, Tier 2s and Tier 3s are strong can only support the market going forward."