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Workforce dynamics shift in auto manufacturing
November 1, 2023
Authored by RSM Canada LLP
Austin Bouchard, CPA shared this article
ARTICLE | November 01, 2023
Accelerating labour activism, rapid automation, and EV transition all at play
Facing continued labour shortages and heightened union activity, automotive manufacturers and their suppliers are now rethinking their strategies to attract and retain talent in a rapidly transforming industry landscape. Labour disruption comes as the sector is pivoting to electric vehicle (EV) production, making it crucial for businesses to pace their transition to the new technology to maintain competitiveness and profitability, while bringing their workforce along.
"Prolonged labour action will strain recovering supply chains, deplete already tight inventory levels, cause price increases and margin pressures, and put additional pressure on slowing manufacturing activity."
Irina Im, Industrials Senior Analyst, RSM Canada
Labour issues come on the heels of significant challenges for the automotive sector in recent years, from supply chain disruptions, exposed inventory levels and chip shortages to steep interest rate hikes and rising production costs. Now, as supply chains and inventory levels have normalized and the sector has been delivering strong profits, workers will remain the focus.
State of the labour market
The labour markets in the United States and Canada have shown striking resilience in the face of economic challenges. Despite the economic pressures of high inflation and rising interest rates, unemployment rates for the manufacturing sector in both countries have remained at historically low levels; as of August, 2.7% in the United States (versus 3.57% for the overall economy) and 3.7% in Canada (versus 5.5% for the broader economy). And although the markets have started to soften in response to the overall slowdown in manufacturing activity, labour shortages are here for the long term due to structural workforce changes driven by cumulative demographic shifts and the resurgence of manufacturing activity supported by industrial policy.
CONSULTING INSIGHT: Human capital
Attracting and retaining high-quality workers is never easy, and the current labour market is predicted to remain tight for the foreseeable future. As such, automotive companies need to develop a human capital approach that aligns with strategic goals, optimizes recruitment and retention, and ultimately brings out the best in employees. Learn more about RSM’s human capital services.
In the United States, the tight labour market and rising cost of living have driven persistent wage increases—even with inflation moderating, real wages have been growing since December 2022.
However, wage growth in the automotive sector has not kept pace with the rest of the economy or even the broader manufacturing sector. Back in 2006, an automotive worker earned an average hourly rate of $23.47 compared to $20.70 in the overall manufacturing sector and $20.04 in all industries. Whereas all other sectors saw a massive 68.8% wage growth since 2006, automotive sector wages increased by only 38%, with average salaries for all workers now at $33.82 vs. $32.40 in the automotive sector. This is partially due to the automotive union’s concessions around a tiered pay structure, cost-of-living adjustments and wage increases, made over a decade ago amid the economic backdrop of the 2008-09 financial crisis.
Empowered by tight labour market conditions and concerned with cost-of-living pressures, widening wealth gaps, and job security issues given rising automation and artificial intelligence, workers have become more assertive in labour actions. As of Sept. 25, Cornell University’s School of Industrial and Labor Relations had registered 291 labour actions in the United States since the start of the year.
The automotive industry is no exception, highlighted by the September 2023 strike by the United Auto Workers union, which represents 146,000 automotive workers in the United States, and the Canadian union Unifor’s recent negotiations with Detroit's Big Three (Unifor represents 20,000 automotive workers in Canada).
TAX TREND: Workforce
Automotive manufacturers whose talent recruitment and retention tactics center on total rewards instead of just cash salary may develop offerings that more effectively match what workers value. This can increase the return on their investment in labour. Understanding the tax implications of workforce strategies can help companies balance costs with offerings that match workers’ preferences.
The UAW made history with its most recent strike, against all three major automakers simultaneously, marking perhaps the most significant labour movement in the sector since 1945-46.
The strike’s estimated daily losses of half a billion dollars will not put the U.S. economy into a recession, but its spillover affects over 70 manufacturing ecosystems in the automotive production supply chain: steel and petrochemical producers, electronics and technology sectors, and automotive parts manufacturers. Prolonged labour action will strain recovering supply chains, deplete already tight inventory levels, cause price increases and margin pressures, and put additional pressure on slowing manufacturing activity.
The transition to EV production presents another layer of complexity in workforce matters:
Shift in production paradigm
The EV transition introduces a shift in automotive production, replacing traditional vehicle parts (engines, radiators, fuel injections, and transmissions or other parts of internal combustion engine vehicles) with complex battery technologies and electronics, predominantly handled by third-party suppliers or joint ventures with Asian battery manufacturers whose workforces are not unionized. This shift raises concerns among workers over job and wage security during plant closures for retooling and at the new EV-producing plants. Companies, meanwhile, are scrambling to attract workers skilled in new technologies and to upskill and retrain the existing workforce.
As automakers shift from production of traditionally high-margin internal combustion engine vehicles to not-yet-scaled EV and hybrid models, they need to optimize their cost structures to stay competitive against new entrants and global automotive markets with more efficient cost structures, especially markets with significantly lower labour costs. For established automakers and their suppliers, this transition may require a complete overhaul of business models and processes, with significant capital investments. The rising cost of labour (the UAW's initial demands were estimated to cost companies between $70 and $80 billion over four years) would compound this financial pressure, potentially resulting in unintended consequences of fewer jobs in the sector and curtailed EV investments.
TAX TREND: Shift in production paradigm
Automotive manufacturers transitioning to electric vehicles and restructuring supply chains accordingly need to incorporate the corresponding tax costs and ramifications. These could include transfer pricing and location-based labour costs and incentives.
To navigate these complexities, businesses must reevaluate their strategies to attract, engage and retain the workforce. The revised employee value proposition should focus on:
Leadership evolution: Fostering dynamic leadership equipped to drive organizational transformation and build a high-performance, innovative and worker-centric culture
Tech-focused workspaces: Creating a modern, safe and technologically advanced workplace to enhance workers’ efficiency and reduce mundane tasks
Skills for the future: Upskilling/reskilling employees (including in technical and soft skills) to stay ahead of the evolving demands of modern manufacturing
Active employee engagement: Providing workers with training, change management and a seat at the decision-making table to ensure smooth transitions and higher buy-in from the workforce
Competitive compensation: Embracing industry-best practices in compensation, rewards, and benefit structures and ensuring transparent paths for career progression
Worker-centric policies: Creating flexible work arrangements by tapping into digital tools, virtual reality and Internet of Things-enabled devices
ESG initiatives: Prioritizing environmental, social and governance initiatives, especially in sustainability and diversity, to attract the next generation of the workforce
Career growth: Implementing career progression and succession plans to ensure employees develop skills to transition into the next role and evolve with the organization
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This article was written by Irina Im and originally appeared on 2023-11-01 RSM Canada, and is available online at https://rsmcanada.com/insights/industries/automotive/workforce-dynamics-shift-in-auto-manufacturing.html.
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