The UAW strike's potential impact on U.S. auto sector

REAL ECONOMY BLOG | October 10, 2023

Authored by RSM US LLP

The United Auto Workers union strike comes at a critical time when U.S. automakers are trying to position themselves as global leaders, especially on the electric vehicle front.

An enduring UAW strike could have significant financial implications for automakers, causing them to redirect crucial financial resources from electric vehicle investment to employee-related costs and demands of union workers. Automakers are already bracing for a lengthy and costly UAW strike. GM recently secured a $6 billion credit facility, following Ford securing a credit facility of about $4 billion in August.

The impact of the strike—which began Sept. 15—extends well beyond automakers; existing supplier relationships normally take the brunt of such labor actions. The network affected by the UAW strike includes more than 5,000 companies and more than 800,000 workers, according to the American Automotive Policy Council, which estimates that the UAW strike has cost the economy $4 billion as of early October.

To put the current strike in context, it helps to revisit the last major strike by the UAW, which occurred in 1970. That strike resulted in substantial increased costs for automakers, including higher pay for entry-level workers, health care costs and a job bank to secure workers’ wages in the event of a plant shutdown. Increased employee costs resulted in the lack of innovation, compressed margins and ultimately less profitability for U.S. automakers, which lessened the barrier of entry for foreign automakers that weren’t bound by unionized labor. As global competition increased, the Big Three automakers’ profits plummeted and the government ultimately bailed the industry out.

However, U.S. union participation today is drastically lower than it was then; of the UAW’s 146,000 workers at the Big Three, for instance, there are about 25,000 UAW workers striking in the current labor action, compared to 400,000 who went on strike in 1970. Automakers have laid off or furloughed over 3,000 employees since the strike began, per NBC News, and more than 3,000 supplier workers, according to the Washington Post.

Impact on the EV transition

The United States has already made great strides in electric vehicles and is among the top three countries in EV sales. We expect the enormous recent federal investment in semiconductors and domestic supply chain expansion—via the CHIPS and Science Act and the Inflation Reduction Act—will further bolster this progress.

When it comes to the United States’ efforts to strengthen domestic manufacturing with investments in semiconductor facilities, a stalled automotive sector could create a greater need for exports of key chip components. Considering China is the second-largest importer of chips after the United States, one concern is that we may be setting domestic semiconductor businesses up for a heavy reliance on exports/imports in a time when U.S.-China relations are strained. This is just one example of the strike’s far-reaching potential implications as it relates to global competition.

Balance in a tight labor market

While living expenses have risen in recent years and manufacturers continue to face challenges attracting talent, automakers should still be careful not to overextend their financial capacity to appease union workers. Rather, companies should consider the opportunity costs of a weighty labor arm to innovation and remaining competitive.

While trying to stop the bleeding is understandable, if U.S. automakers want to be on the winning side and remain competitive, it will be important to secure and maintain supplier relationships so those suppliers are equipped to support them once the strike ends.

This work stoppage comes at a time when many companies are already facing margin compression, and automakers should plan for this to continue. Investments in automation and other technologies can help companies weather these challenges.