Negotiations between the United Autoworkers (UAW) and the big three automakers — Chrysler, Ford, and Stellantis (parent company of Chrysler) — are slated for the end of the year, and it is already causing a stir amongst the auto industry.
Aside from the car companies and the roughly 150,000 union workers who will be directly affected by the new agreement, the impacts of the negotiations will also ripple down, disrupting suppliers, investors, dealers, and other players in the automotive game.
Perhaps more importantly, this agreement will solidify how quickly electrification is taking over the industry, serving as a much-needed wake-up call for anyone still clinging to the internal combustion engine (ICE).
Here is my prediction for the 2023 UAW and OEM negotiations—what the outcome of the talks will be, how it will impact the future of auto workers, and what it will mean for automotive suppliers and other auto companies this year.
What is Up for Negotiation?
Amidst major corruption claims within the UAW, union workers are voting for new faces to represent their concerns. They are looking for leaders who will not readily concede to the giant automakers and will fight for high wages, better benefits, cost-of-living adjustments, job security, and financial recognition for their contribution to the record profits by OEMs during the coronavirus pandemic.
In turn, the automakers will likely push for concessions that loosen their ties to the supply chains dedicated to the engine and transmission so that they can phase out of traditional auto operations (and eliminate large legacy costs/burden) and shift resources on electric vehicle (EV) production.
These drastically different goals lay the ground for a contentious negotiation and possible union strikes. The OEMs’ strategies to prepare for the outcome will significantly impact suppliers this year.
The OEM Strategy: Shed Assets
Traditional auto giants are losing their edge to brands like Tesla, who aren’t tied down legacy ICE assets and liabilities as the Big Three. To eliminate that advantage and put themselves back on more of a level playing field, GM, Ford, and Stellantis will need to cut legacy costs, which, unfortunately, includes facilities and employees who have built their careers around the engine and transmission supply chain.
They will likely approach this by reducing and selling off those assets to major tier 1 suppliers, such as Magna. This will be a major risk for the UAW, as Magna is not a large scale unionized manufacturer and is more likely to push for significant concessions from the Union.
The Union’s Rebuttal: Unionizing Battery Cell Plants
Of course, the UAW isn’t expected to accept these concessions without a trade-off. So, what will they be asking for?
One potential outcome enabling automakers to shed legacy costs related to the ICE supply chain while providing future security for the Union would be unionizing the automaker’s joint-venture battery partnerships.
It is likely that union leaders will see the writing on the wall during these negotiations—that the traditional engine is dead—and will meet some of the Big Three’s demands in exchange for access to their battery cell operations and a petition from the automakers to unionize. This could lead to unions within Ford’s JV with Sk Innovations, GM’s JV with LG and Chrysler’s JV with Samsung.
We’ve already seen the unionization of battery cell plants in December of last year, with hourly workers at Ultium Cells LLC, a joint venture owned by General Motors and LG Energy Solution, voting to unionize the Ohio-based plant. Mary Barra, CEO of GM, has also repeatedly expressed her support of the unions entering the battery cell plants, so this could be a relatively easy win for the UAW.
How Negotiations Will Impact the 2023 Supply Chain
While automakers will want to avoid costly strikes, like the 40-day strike in 2019 that cost General Motors around $4 billion, they will also prepare themselves for the possibility if it means winning the agility and flexibility needed to compete in the new electrified auto market.
To prepare for this, the OEMs will likely bolster their supply volume in the first half of the year, boosting stock in the event of union strikes in the second half of the year. Suppliers (longing for a return of healthy production volumes since the production crash due to COVID and chip shortages) will need to remain cautious and strategic throughout 2023. Suppliers should expect an uptick in production now, followed by a slowdown or halt in the year’s second half.
This will also serve as an important reminder for suppliers and other automotive players to begin developing and executing a solid strategy for approaching electrification if they haven’t done so yet.
GM is moving to cut their days on hand. So no production Saturdays and already had 2 weeks of layoffs