REAL ECONOMY BLOG | October 18, 2023

As the United Auto Workers strike in the United States makes headlines, automakers have also been renegotiating labor contracts with Canadian union Unifor, which represents 20,000 auto workers.

Given the deep interconnectedness of the U.S.-Canada automotive supply chain, any U.S. disruptions are bound to resonate in Canada. One month into the strike, about 34,000 UAW workers are striking at six assembly plants and 38 parts distribution facilities operated by Detroit’s Big Three. Should the UAW strike last for much longer, it threatens to prompt a ripple effect beyond the auto industry and across the border.

Recent negotiations

Unifor has taken a patterned bargaining strategy with the Big Three, focusing negotiations with one automaker at a time – starting with Ford, followed by General Motors, and Stellantis next in line.

• Ford: On Sept. 24, in a tight decision with only 54% voting in favor, 5,600 workers ratified a new three-year contract with Ford. This was a sharp drop from the 84% approval rate in 2020, which might indicate some growing discontent among workers, though they did make material progress on wage gains, pension improvements and other benefits.

• General Motors: As of Oct. 16, General Motors ratified its agreement with Unifor with 80.5% of voters in favor after a short strike that lasted less than a day at several Canada locations. Reflecting the pattern set by Ford, the agreement includes almost 20% wage increases for longtime workers, cost of living allowances, pension improvements, faster wage progression and quicker transition of part-time workers to full-timers. The younger workforce demographic at GM (50% of workers at GM are still progressing through the wage grid, with 40% having fewer than three years of seniority, vs. only 12% at Ford) may have been a factor in the agreement’s approval rate.
• Stellantis: The narrow approval margin for Ford’s contract and ongoing UAW strike indicates that Stellantis negotiations may prove to be more intricate, as union representatives signaled that they are not bound by pattern bargaining and will strive to secure favorable terms for 4,800 Stellantis workers.

Ripple effects

Within the automotive manufacturing ecosystem, these are some of the key areas that will be affected by the labor action and contract negotiations:

• Supply chains: The automotive sector is known for its long supply chain – Bloomberg estimates that only 30% of motor-vehicle production output comes directly from within the sector, with almost 50% of inputs being sourced from other industries. In addition, motor vehicle manufacturing and industries feeding into the auto supply are very labor-intensive; for each auto worker involved in car manufacturing, four workers from other industries contribute to car production. Thus, a prolonged strike may have a significant spillover effect on production and employment across the ecosystem, from machinery, metals, and plastics production to logistics and distribution and service sectors, both in the US and Canada.

• Inventories: Manufacturers expecting potential strikes boosted inventories in recent months and continue to bolster production where possible. Because of this, dealerships had healthy inventory levels with even some surplus going into the negotiation period. However, an extended UAW strike across production plants and parts distribution centers threatens to strain vehicle supply, impacting both automotive suppliers’ production lines and dealership lots.
• Costs and pricing: Inevitably, limited supply will push vehicles’ prices upward. Even prior to current renegotiations, there was a notable rise in the sales of higher-cost models within Detroit Three’s product mix. Long-term, higher labor costs will create further margin pressures, compelling automakers to revisit product mix and further seek increased operational efficiencies. But, rising costs will eventually get passed on to consumers, further impacting vehicle affordability.

• EV transition: The shift from internal combustion engine vehicles to EVs has sparked concerns regarding job security and wage parity. Facing the risk of diminishing engine and transmission manufacturing jobs and potentially lower pay at EV battery plants, unions are advocating for the unionization of battery plants. This has broader implications for legacy automakers’ transition to EV production, with potential ramifications on costs, pricing strategies and competitiveness, especially with players and markets with lower labor costs.

Given all these factors, operational excellence is becoming paramount. This is a critical moment for companies to look for opportunities to profitably grow revenues by optimizing their product mix while protecting market share, improve supply chain, production, and distribution efficiencies, maximize inventories and other assets efficiency, and increase ROI on capital investments.

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