October 20, 2023 The UAW Strike: How Will It Disrupt the Auto Industry?

Now that auto workers are on strike, how long it lasts will determine how it affects both the Big Three Detroit automakers and consumers.

Since early summer a potential UAW strike had been a closely watched topic in the news, with the union and Detroit’s Big Three automakers unable to reach an agreement despite negotiations. Now, with the strike underway, the potential impacts on supply chains, consumer behavior, and the auto industry as a whole has become an issue of larger concern. In looking at the potential impacts, it would be useful to approach the issue from the dual perspectives of the auto industry as well as consumers and to also consider both the short-term and long-term implications.

We can start by looking at the issue from the end point of the supply chain, the consumers. In the short-term, the strike should not prove to be terribly inconvenient for all but perhaps the most die-hard brand loyalists. There are several reasons for this. First, notwithstanding the pandemic and the disruptions it caused to supply chains, car dealers had actually gotten back to fairly healthy inventory levels. As of September 2023, the Federal Reserve Bank of New York’s Global Supply Chain Pressure Index (GSCPI), was at -0.69, while in early 2020 it had been at 0.00. A below-zero, negative score for the GSCPI means less volatility (as measured by a collection of manufacturing, sourcing, and freight pricing indices) so we are back to pre-pandemic levels of risk to supply chains.

Auto dealers, at least more recently, have been in a pretty good place inventory wise. What this suggests is that for the very near term even the Detroit Big Three, the targets of the UAW strike, should fare decently in terms of being able to meet consumer demand. However, as the strike continues, and as inventory gets whittled down, this may change. But then what will likely happen is that consumers will simply go to competitors – i.e., the non-Big Three – such as Honda and Toyota. The exception, as mentioned, would be the staunch brand loyalists who simply must have a Ford, GM, or Stellantis vehicle, and there are certainly some makes and models that don’t have many natural competitors such as Stellantis’s Jeep Wrangler.  But for most average consumers looking to purchase, say, a four-door sedan, a crossover SUV, or a pickup truck—collectively the most popular vehicle types in the U.S.—there are more than enough attractive alternatives that should not be directly impacted by the strikes. This is from a short-term perspective, though.

From a long-term perspective, it’s conceivable that if the UAW strike goes on for longer than anyone anticipated, even the non-Detroit Big Three could potentially get impacted. As we know, as with many large industries the auto industry is a complex and interdependent network. Automakers rely on a myriad of suppliers and service providers who rely on other suppliers who in turn rely on suppliers of their own, going all the way back to raw material extraction. An OEM (original equipment manufacturer) may have eight or ten tiers of suppliers, and if one tier gets disrupted that can affect all the tiers above it—a lesson we learned all too well during the pandemic. Given the interdependent nature of supply chains, if a supplier working with one or all of the Detroit Big Three were to suffer some sort of significant disruption—say, due to loss of business from their Big Three clients—this could also hurt other, non-Detroit Big Three automakers who work with these same suppliers and service providers. When you consider that consumers may be flocking to the Big Three’s competitors to purchase the cars they couldn’t buy at Ford, GM, or Stellantis, the contagion effect of supply chain disruption become a problem for these competitors if they can’t replenish their inventory fast enough due to their suppliers running into hiccups somewhere along the supply chain. 

Another long-term implication has to do with the economy as a whole. The late, great Peter Drucker famously referred to the auto industry as the “industry of industries” due to its fundamental and far-reaching impacts on the U.S. economy overall. Consider that in 2019, for example, there was a UAW strike against GM involving 48,000 workers and more than 50 manufacturing plants. It lasted six weeks and single-handedly caused Michigan to slip into a regional economic recession that lasted for a quarter. A strike like the current one which targets multiple manufacturers and involves more workers and more plants, especially if it continues for more than a month (which we are already rapidly approaching), could have a more widespread and long-lasting impact on the economy. If the major automakers suffer significant losses, it could result in workers getting laid off or forced to decrease their work hours. Naturally, this translates to economic ripple effects such as less consumer spending and shaken confidence that result in additional ripple effects.

Ultimately, everything depends on how long the strike lasts and how well the negotiations go. Unfortunately, it may be a longer and messier process than anyone suspects because there may be more to this strike than is obvious on the surface. Although it isn’t being widely discussed, the EV transition poses an existential threat to auto workers’ job security due to EV manufacturing being a simpler, more streamlined and modular process involving less moving parts, both literally and figuratively. Legacy OEMs, including the Detroit Big Three, have made their bold intentions quite clear: EVs are the future. Because of this, it may prove very challenging to reach an agreement that both sides will be happy with, thus prolonging the strike and possibly accelerating and worsening the long-term problems discussed earlier.   

Professor Thomas J. Goldsby is the Dee and Jimmy Haslam Chair of Logistics at the Haslam College of Business, University of Tennessee-Knoxville. Dr. Goldsby serves as Co-Director for the Global Supply Chain Institute (GSCI) at the Haslam College. He is immediate-past Co-Editor-in-Chief of the Journal of Business Logistics and Editor Emeritus of Transportation Journal. He has published more than 100 articles in academic and professional journals and serves as a frequent speaker at academic conferences, executive education seminars, and professional meetings around the world.  Professor Goldsby is an author of five books on logistics and supply chain management. 

Dr. Goldsby is a recipient of multiple best paper awards and he has received recognition for excellence in teaching at the University of Tennessee, The Ohio State University, University of Kentucky, and Iowa State University.  In 2019, he was recognized as a “Rainmaker” by DC Velocity magazine and received the inaugural Lifetime Achievement Award from Supply Chain Leaders in Action (SCLA).  Along with Dr. Ted Stank, he co-hosts the “Tennessee on Supply Chain Management” podcast.

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