Given recent headlines surrounding contentious UAW contract negotiations, it is increasingly likely that a labor strike against one or more of the Big Three automakers is not a question of if such strikes will occur, but when and against whom.
With all of the attention focused on the tone and nature of UAW demands and the impact of a strike on General Motors, Ford and/or Stellantis, little thought has been devoted — at least in media circles — to the implications of a UAW strike on automotive suppliers. But these suppliers have been victim to the same geopolitical and logistics difficulties that have wreaked havoc on the supply chain over the last several years. And as a result, unlike the Big Three, many have far less financial resilience now than they did in 2019 when the last round of negotiations resulted in a 40-day strike against General Motors.
With that said, between now and September 14 when existing labor contracts expire, suppliers should prepare, prepare, prepare. From a legal perspective, that involves the following:
- Identify which of your supply chains involve components ultimately destined for General Motors, Ford or Stellantis. These are the supply chains at risk in the event of a strike.
- For those at-risk supply chains, pull your contracts with both your customer and sub-supplier(s) to understand your rights and obligations in the event of a strike.
- Assess your customer contracts for at least two things:
- First, assess what kind of contract you have with your customer (long-term agreement, requirements contract, release-by-release contract, etc.). For example, if you and your customer have a requirements contract, your customer is required to purchase its actual good faith quantity requirements from you. In the event of a strike, that number may be zero.
- Second, review the contract provisions your customer might leverage to justify suspending orders to you or limiting their damages to you in the event of a strike. These provisions can take many forms and may be characterized as force majeure, limitation of liability, order flexibility, etc. in your contracts.
- Review your supplier contract(s) in the same way. That is, determine what kind of contract you have with your supplier and assess it for contract provisions that give you the right to suspend or limit orders to your supplier without liability in the event of a strike, or that at least limit your liability in such event.
From a practical perspective, that means maintaining open communication with your customer and supply bases. With respect to your customer base, discuss your customers’ ordering plans with them and whether inventory should be maintained, and be clear about lead times necessary for an abrupt production ramp up. And with your supply base, assess whether minimum orders can be made to build a small inventory and keep the supply lines “open” to some degree to maintain both parties’ workforce. This is also a good time to work closely with your HR and logistics teams to develop a strategy for temporarily refocusing labor efforts in the event a strike leads to downtime, whether those efforts concentrate on training, production improvement projects, catching up on maintenance and the like.
Regardless, being stuck in the middle is the most vulnerable place to be in during a strike situation. That is, if your customer can suspend orders to you without cost or liability, but you do not have the right to do the same with your sub-supplier. Warner’s automotive supply chain attorneys regularly assist suppliers in conducting exactly this kind of analysis to help them identify and strengthen areas of vulnerability in their business. If we can help you through this, please contact Laura You or a member of Warner’s Automotive Industry Group.
