UAW makes gains at auto suppliers — but it could come at a cost

The UAW is making significant gains in wages and benefits at automotive supplier factories, but the Shawn Fain-inspired labor negotiations have some executives on edge.

Across supplier plants in Michigan and beyond, workers are winning wage increases and benefits not seen in previous contracts. It’s a victory for workers — at least in the short-term — but a potential issue for suppliers seeking margin recovery amid cost-cutting mandates from customers.

The contentious negotiations between the international UAW and Detroit 3 last year have inspired local union leaders to take more of a hardline approach when bargaining with the companies further down the supply chain.

“[UAW President] Shawn Fain has directed all negotiators to negotiate harder for the members,” Waymon Halty, vice president of UAW Local 155, told Crain’s Detroit Business. “We took that order on, and we’ve fought the good fight a lot harder than we had in previous leadership years.”

Halty has led labor negotiations this year with a range of local supplier plants, from large tier-ones including Magna International Inc. and American Axle & Manufacturing, to smaller operations such as Milton Manufacturing and James Steel.

A typical annual wage increase would be around 3 percent, but this time the percentage increases have been double that or more. The union has bargained for better health and safety benefits, and in some cases, doubled signing bonuses, too.

“They have gotten gains that they’ve never gotten before,” Halty said.

Unlike the UAW master agreement with the Detroit 3, which covers all of the companies’ unionized locations, labor deals with suppliers are typically done on a per plant basis, and they are staggered so not every plant is negotiated at once.

Jobs at suppliers typically come with lower wages and weaker benefits than the automakers, reflecting the wide gap in profit margins and financial strength between the two. Automakers generally have achieved strong profits in recent years, while suppliers have taken the brunt of industry stressors, including the supply chain crisis, and more recently, electric vehicle sales growth not meeting expectations.

That’s why negotiating with suppliers the same way as automakers could be problematic. Executives at several large auto suppliers — and even some UAW local leaders — have told Crain’s Detroit Business they are worried that companies could be pushed too far. Crain's Detroit Business is an affiliate of Automotive News.

“It will mean less jobs,” one of the local union leaders told Crain’s. “Somebody’s got to pay for it.”

A month ago, workers at a Lear Corp. plant supplying seats to General Motors Wentzville Assembly went on strike for three days before landing a labor deal with a 30 percent wage increase.

Lear CEO Ray Scott said the company worked with the union to arrive at a satisfactory agreement. But those increased costs must be absorbed somewhere, and the automakers aren’t interested in taking another hit on labor.

“The suppliers are under an enormous amount of pressure on margin,” Scott told Crain’s in an interview. “The supply base as a whole doesn’t have the type of ability to support the cost of material, and obviously the cost of labor, that will at some point induce serious damage to a particular company without some way of offsetting their costs.”

For Lear, the way to do that over the long term is through “operational excellence” and ramping up automation, Scott said. The company is investing heavily in automating manufacturing plants as a matter of “survival,” as many other suppliers have also turned to robots to help solve the labor equation.

To be clear, rising wages aren't the only factor driving increasing automation. Labor scarcity continues to be a major issue in the industry, especially in the U.S. Fewer people are choosing factory work when jobs at Amazon and other companies offer comparable or better pay and benefits.

Automation often targets undesirable tasks in factories and can also be a tool to attract and retain workers, Scott said, because it improves ergonomics, health and safety and job satisfaction.

“We’re not really counting heads,” the CEO said. “We’re looking at … how we can drive more flexible, engineered products in the manufacturing plant with automation.”

Executives at two other Tier 1 suppliers told Crain’s Detroit Business that wage increases will likely force them to reduce head count.

Auto companies have for decades turned to Mexico and other countries with lower labor costs, as the rise of automation also eliminates jobs — and higher labor costs in the U.S. will fuel those trends, the executives said.

The U.S. has hemorrhaged auto supply jobs in recent years. The number of workers in motor vehicle parts manufacturing in Michigan was 116,000 in July, down 3 percent from the previous month and 50 percent from a peak 25 years ago of 230,000, according to data from the Bureau of Labor Statistics.

In the U.S., there are 590,000 workers in parts manufacturing, down more than 30 percent from 25 years ago.

“I have longstanding relationships. I’m not trying to put you out of business,” Halty said. “I’m trying to keep things competitive, keep employees happy, keep the company profitable.”