UAW strike prompts smaller suppliers to seek federal aid

Suppliers are asking the federal government to quickly provide aid to smaller parts makers that are facing major financial trouble as the UAW strike begins to extend to a third week.

"The supply chain, particularly smaller suppliers, came into this strike in a very, very fragile position," said Ann Wilson, senior vice president of government affairs at Motor & Equipment Manufacturers Association, which represents more than 1,000 automotive companies at multiple tiers. "We need to make sure that we provide them with the resources necessary to both make it through to the other side of the strike and ramp up, but also make the transition to zero-emission vehicles."

Wilson told Automotive News that about 75 percent of the organization's members indicate they will be forced to lay off employees if the strike lasts for one month, which would be mid-October.

On Sept. 25, the group sent a letter to President Joe Biden urging the administration to provide federal assistance to help suppliers stay afloat amid the UAW strike, to help them ramp back up once it ends and make the investments necessary to transition to electric vehicle-related production. The organization asked the White House to provide loans to suppliers with annual revenue of less than $200 million, in addition to setting up an emergency work force training program that would allow workers to stay on the job even if production is stopped.

The UAW strike comes at a precarious moment for small to medium-sized suppliers, whose financial health has been spotty since 2020 because of inflation and uneven new-vehicle assembly schedules, even as automakers have racked up high profits. A survey of small and medium-sized suppliers conducted by Harbour Results Inc. this year found 30 percent of them were in "poor financial health," with another 21 percent struggling "somewhat."

"We've seen a significant increase over the past year of small to medium-sized suppliers in financial difficulties," said Julie Fream, CEO of the Motor & Equipment Manufacturers Association's Original Equipment Suppliers group. "The [companies placed on] watchlists that the industry uses, whether it's an OEM watchlist or one of the larger Tier 1 suppliers, have gone up in multiples, not percentages. There are three or four times more suppliers on those lists now."

The number of suppliers in financial distress could grow again in the coming weeks, should the strike continue and if more assembly plants are affected by it.

While some suppliers already have been forced to lay off workers, most are looking to delay doing so for as long as possible. The companies fear those employees might seek other jobs while production is stopped and won't return when the strike ends and automakers want to quickly ramp up production to catch up with demand.

Filling factory jobs has been a challenge across the industry since at least 2020, when the COVID-19 pandemic started. Wilson said that an emergency work force training program should be set up "right now, while we have some downtime to make sure that workers are staying in the facilities, are training for the new technology coming, are satisfied with the continuation of the employment, and so the supply chain knows we'll have enough work force there for the future."

Some suppliers are already looking for ways to keep workers on the job, even if production orders from their customers have stopped. A source at one major North American Tier 1 supplier said the company has been able to maintain its work force — despite eight of its plants being impacted by the strike — by having employees do different tasks, such as facility maintenance or organizational chores.

But the supplier remains "concerned" about what will happen as the strike escalates.

"Our goal has been to maintain the work force for as long as we possibly can," said the source, who asked not to be identified.

A source at another Tier 1 supplier said that while the strike has had a somewhat limited scope early on, and has yet to bring about the "life or death" stakes for the supply chain that the industry has feared, things could change if it escalates.

But matters were already "getting ugly" at the Tier 2 and Tier 3 levels, the source said. To compensate, the larger company was accepting bigger inventories of unneeded parts from its supply chain, simply to help keep those smaller companies in operation. It will no longer be able to do that, however.

"We're going back to our Tier 2s and Tier 3s and saying, 'We know you need to keep shipping, but we can't continue to take it because we don't have the room to maneuver with cash anymore, because we're paying you for this stuff that we don't need,' " the source said.

Some suppliers now hope automakers themselves will step in to provide financial relief to the broader supply chain.

"We can't do it anymore," said the Tier 1 supplier source. "If sales don't recover this year and we're already in critical condition with the supply chain, at what point does this tip over into a crisis?"

In the meantime, the Motor & Equipment Manufacturers Association's Wilson said conversations with the White House about federal aid have been productive.

"We've had a lot of open dialogue about where the supply chain finds itself, and they've been very receptive to our concerns," she said.

The organization has asked the White House to establish a "scalable program" through the Small Business Administration or another federal agency to provide loans with low interest rates and even loan forgiveness. The loans should be for a minimum of $500,000, capping out at $10 million, and structured with "capital accessible on a stated-need basis with up to 50 percent of the loan value for payroll," the group's letter to Biden reads.

"Without federal assistance," the letter said, "the ability of the automotive industry to resume full manufacturing capacity is at risk."