The tentative agreements that the UAW reached with the Detroit 3 (D3) automakers have many casual observers believing that the turmoil in the automotive industry is over, at least until the contracts expire in 2028.
Deeper analysis considering the perspectives and priorities of the players indicates near certainty of high levels of conflict at numerous suppliers, with disruptions rippling throughout the industry.
The UAW will also launch major unionization efforts at both original equipment manufacturers (OEMs) and supplier plants. The 2023 UAW negotiations, strikes and agreements are signs of how the world has fundamentally changed in the last two years due to economic and geopolitical disruption with implications for many sectors other than automotive. Every company should be assessing how the new landscape and labor scenarios affect their strategies, finances and decisions.
Expect Further Disruptions
A key feature of the UAW negotiations with the D3 was UAW President Shawn Fain making a massive list of “audacious” demands and not backing off any of them in public. One result of this approach has been to raise member expectations, not only at the D3 but across the UAW.
UAW members at suppliers will likely expect the same aggressive tactics deployed in the D3 negotiations. Moreover, they may not accept wages – or at least wage increases – that do not match what D3 workers are getting, especially since their benefits are well behind D3 levels. But unionized suppliers face a far more competitive environment than the D3, including from foreign plants, and they do not have the same profitability or pricing power as the D3.
It would be extraordinarily difficult for any union leader to manage the difference between member expectations and company ability to pay at forthcoming supplier negotiations. But with public bargaining and union democracy, the UAW rank and file is empowered as never before, with social media to spread the word and dissatisfaction. Every negotiation will be at high risk for strikes and/or failed ratifications. The auto industry seems certain to face further disruptions, each of which might force more assembly plants to stop production than during the height of the D3 strikes. Avoiding a series of chaotic confrontations should be an urgent priority of UAW leadership, since the damage to the UAW brand and to UAW-represented companies and their workers could become enormous and long term.
Any North American auto manufacturer or supplier – whether unionized or not – faces a substantial risk of a business disruption as long as UAW-member militancy is a powerful force, since almost every vehicle built in North America has at least some parts from a UAW supplier.
Lengthy Strikes Likely
Many suppliers will have breathed sighs of relief once the tentative agreements with the D3 were announced and ratification is imminent, grateful that the damage to their business was small and now over. But strikes at critical suppliers could quickly spread closures and financial damage throughout the industry. Suppliers should retain the measures to protect cash flow and liquidity that they initiated during the D3 strikes.
The new UAW aggressiveness will have long-term effects on the U.S. auto industry and suppliers and manufacturers should immediately adjust their decisions. Production or part supply could be disrupted at any time by labor action, so suppliers and manufacturers need to build financial resiliency. Suppliers should recognize that lengthy strikes at the D3 are likely in 2028 unless the industry is in recession and factor that risk into their pricing for D3 business as well as trying to diversify outside the D3.
Manufacturers and suppliers in the U.S. and Canada can expect enormous direct and indirect pressure to raise wages. The UAW has correctly labeled the large wage increases announced by Toyota, Honda, and Hyundai a “UAW dividend,” and the pattern will spread across companies, whether unionized or not. Indeed, it will pay off for non-unionized automotive companies to announce large wage hikes to get ahead of the pressure and reduce unionization risk.
The UAW has opened the largest labor cost gap between the D3 and non-union manufacturers in history. Yet Shawn Fain still hopes for further strategic gains in 2028. As he recognizes, this may only be possible if UAW unionizes most manufacturers. Even one major win could make a difference in the dynamic.
The UAW is riding a wave of publicity and praise, and public impressions of unions are increasingly favorable. There has never been a better opportunity to unionize, so it is both logical and imperative that the UAW try to grow, especially at the assembly-plant level.
Yet the UAW will not find gains to be easy. The struggles of the D3 before and during the financial crisis will be blamed on the UAW by non-union companies and union opponents. Non-union OEMs are located – consciously – in states unfriendly to unions. Tesla workers have received equity in a rapidly rising stock and may not be tempted by higher wages and benefits. But the wage increases just announced by Toyota, Honda and Hyundai show that the companies are afraid as perhaps never before.
A Fundamental Shift
The new labor environment has its roots in macro trends. The rise of unions in the last century was aided by the growth of industrialization, urbanization, and working-class power. The decline in unions over the last 50 years was driven by the shift from manufacturing to services, from cities to suburbs, and from protected markets to globalization. Now geopolitical turmoil, the declining faith in trade and government, and economic and social anxiety have fundamentally shifted the landscape, creating a fertile opportunity for worker activism and unions. The UAW strikes and gains are only one indicator; transportation and entertainment are also being disrupted.
Many sectors could see the impact of labor momentum. Every union should be studying the UAW negotiations and strikes. The circumstances will be different at each company and negotiation, but a more aggressive and strategic approach is likely to be valuable in many contexts. Unions should also look at the UAW ratification process, internal communications, supplier headaches and unionization drives for lessons to emulate and avoid.
On the management side, companies – particularly if they are unionized – should expect unions to follow the new playbook. Employers will need to study the lessons as well and prepare for a more confrontational labor environment. Companies other than the D3 should firmly resist the pressure to align their contract expiration and avoid what is likely to be a confrontational spring in 2028. This is only a small example of how companies would benefit from the 360° perspective that game theory and scenario wargaming give in complex and uncertain times.
Marc S. Robinson, Ph.D., principal of MSR Strategy, is an economist and strategist with more than 30 years of experience advising leaders in multi-national companies, governments, and non-profit organizations. He spent most of his career as an internal consultant for General Motors. He also served in the White House on the President’s Council of Economic Advisors and taught at UCLA and Stanford University. He and his colleague John Jullens publish the applied business strategy newsletter C-Suite, where this article originally ran.
