Just weeks after the Big Three shocked the industry by announcing plans to move some assembly back inhouse, a labor strike at a major auto supplier is making the automakers appear clairvoyant. Adding to pricing pressures, volume cuts, and rising material costs, the United Autoworkers (UAW) strike at American Axle is shuttering production across the industry.
American Axle is a supplier of parts to leading Tier One assemblers Lear and Delphi Corporation. According to a Purchasing Magazine article earlier this week, American Axle had stockpiled a week’s worth of inventory to maintain supplies to its key customers. As the strike stretched into its second week, depleted inventories have sent shock waves throughout the industry.
According to the Detroit Free Press, part shortages stemming from the strike have forced Lear and Delphi to layoff workers and curb production. The outages have also caused General Motors to shut down six pickup and SUV plants as well as its transmission plant in Toledo, Ohio. The paper reports that American Axle is also a sub-tier supplier to Chrysler and Toyota, although neither company has reported that the strike has caused them to curb production just yet.
However, industry watchers warn that, unless resolved quickly, the strike could have a far more negative impact on U.S. auto manufacturing. The issue? Cash flow. Already pinched by the sagging economy, many auto-suppliers have borrowed against future sales. Production halts could cause them to default on these loans, forcing more auto-suppliers to file for bankruptcy. And that’s not good for anyone.
The events reaffirm the importance of assessing and balancing supply risks and understanding cost structures for both primary and sub-tier suppliers. (A point validated by the priority top supply execs put on supplier performance and risk management in Aberdeen Group’s latest CPO Agenda study.) It also signals a fundamental restructuring of the auto industry; one which will see automakers rethink their global sourcing strategies, bring more production back in house, and engage in more joint ventures and alliances to offset costs, balance risks, and penetrate new markets.
