The Automotive Supply Chain: Stabilization — And Then a Strike
As with other industries, the COVID-19 pandemic did quite a number on the automotive supply chain. Issues like severe parts shortages, port congestion, and a dearth of semiconductors put automakers and their suppliers in a perpetual state of scramble to deal with the whack-a-mole disruptions that plagued them.
However, according to a recent report the Capgemini Research Institute released on September 4, things have turned around enough that “automotive organizations now feel more confident to tackle future supply chain disruptions.”
Of course, that was before the launch of a historic strike by the United Auto Workers (UAW) targeting the Big 3 all at once.
The Capgemini Report
The report, “The automotive supply chain: Pursuing long-term resilience,” was conducted during June and July in 2023 and surveyed 1,004 senior executives from “leading global automotive organizations” from across 10 different countries. Twenty-four “in-depth interviews” were also conducted with senior industry executives and experts from OEMs and suppliers to “understand the current state of supply chain management in the automotive industry and to provide insights into strategies that can be applied to establish a resilient, connected, intelligent and sustainable supply chain.”
Key findings include:
“Auto organizations are more confident to tackle future supply chain disruptions, having slashed backlog orders by 61%. A further 39% reduction is predicted in the next year.”
“Nearshoring strategies [are] expected to be reinforced, driven notably by the adoption of electric- and software-defined vehicles and the evolution of regulatory and government policies.”
“While sustainability and the circular economy are key components of the supply chains of the future, less than half of organizations have deployed initiatives in the past 12 months, and only 13% of these are being actively scaled.”
The report noted that the supply chain stabilization achieved so far has been the result of automakers being “forced to rethink, restructure, and refinance their supply chain management.”
“While issues have been stabilized in the short-term, supply chains are still transforming due to their complexity and evolving factors: the acceleration of electric vehicle (EV) production, the new regulatory and government policies, and the adoption of more software-based features like ADAS (Advanced Driver Assistance Systems), increasing the demand for semiconductors,” Capgemini said.
The firm said a “global re-orchestration” is in the works — with offshore procurement down by 22% in the past two years.
“Europe leads this trend having reduced offshore procurement by a quarter since 2021,” the report said. “This is followed by APAC and the US who have reduced offshore sourcing by 20% and 18% respectively.”
As far as what’s ahead, the automotive organizations surveyed expect “procurement from offshoring locations to reduce by a further 19% by 2025, as electric vehicle production surges and the fabrication of key electronics components relocates.”
The report also addressed findings related to sustainability efforts, nearshoring trends, inventory building, and intelligent supply chains.
“Sustainability efforts are faltering in the automotive supply chain”
According to the report, the string of supply chain crises that have hit the automotive industry have “sapped automakers’ time and diverted focus and investment away from sustainability initiatives.”
“Consequently, sustainability is not currently considered a priority for many of them, with only 37% of respondents stating that issues such as carbon footprint management and environmental risk influence supply chain decision-making,” Capgemini said. “Investment across the industry reflects this trend and while OEMs’ total investment in supply chain sustainability is on par with last year, suppliers’ annual investment has significantly reduced by 17%.”
The report also noted that a “shortage of suppliers of recycled materials (and of the materials themselves),” have also played a role in delaying the “scaling of circular-economy initiatives.”
“The creation of new supply chains for semiconductors and electric vehicles will accelerate nearshoring”
Semiconductors and sensors are playing a growing role in the new car manufacturing and vehicle value due to a “surge in efforts to deliver software-based features and services.”
“However, only half of OEMs consider the current supply of semiconductor components as secure,” the report said. “Of those surveyed, 70% said the majority of supply is currently being obtained from China, Taiwan, Japan, and Korea.”
To change this dynamic and increase the security of critical supplies, Capgemini said OEMs are investing in “alternative supply methods and moving away from tier-1 and -2 suppliers.”
The report noted that along a similar vein, “OEMs have secured only three years of EV battery raw materials on average.”
“Inventory building has stabilized but is not a feasible strategy in the long-term”
According to the report, half of OEMs expressed confidence that they “would be able to avoid 60% of the revenue loss they incurred in 2022 if the same scenarios – including the semiconductor shortage – happened again today.”
“To address operational and logistic issues, both suppliers and OEMs have adopted strategies based on adding operational investment and working capital,” Capgemini said. “This is led by the building of inventories, which 81% of suppliers and 44% of OEMs have implemented. However, it’s clear that this is unsustainable in the long-term as holding excessive inventory risks a variety of negative effects on the operational and financial wellbeing of automotive organizations.”
“A lack of a data-driven intelligent supply chains impedes the automotive industry’s goal for long-term resilience”
Noting that “visibility and transparency are key to create a more trustworthy supplier ecosystem,” the report said that 53% of respondents “have a mature intelligent supply chain in place to enable data-driven decision making, allowing for the integration of newer technologies such as AI and data analytics.”
Capgemini said that more participation in “standardized, open, and trusted data ecosystems that include new suppliers for software driven services” would help automotive organizations to “further progress resilience and sustainability ambitions.”
“Over the past few years, organizations have been forced to restructure and refinance supply chain management on the fly in order to navigate multiple disruptions from all fronts,” said Alexandre Audoin, Global Head of Automotive Industry at Capgemini. “While in a more positive place today, automakers need to look at delivering a long-term, intelligent, and data-driven strategy that will build resilience and competitive advantage. More so, this needs to incorporate circularity as an essential component, not only to help organizations navigate regulatory changes, but to embed new players in the supply chain ecosystem and also achieve ambitious climate-targets.”
The historic UAW strike
It’s unclear if the participants in the Capgemini study included representatives of Ford, GM, or Stellantis. If so, they may have expressed much less confidence about dealing with supply chain disruptions if polled after September 15.
That’s the day the UAW launched a historic strike — targeting the Big 3 all at once.
As Abe Eshkenazi, CSCP, CPA, CAE and CEO of the Association for Supply Chain Management (ASCM) said in a September 22 post, the strike hit just as things were beginning to settle down: “After years of instability and uncertainty, this summer, supply chains finally seemed to get back on track. Inventories increased, shipping delays subsided and employers rehired staff. But about a week ago, the United Auto Workers — the labor union that staffs the Detroit Three — went on strike. It’s the first time there’s been a strike against Ford, GM and Stellantis (the parent company of Jeep and Chrysler) at the same time.”
After describing strike dynamics, Eshkenazi noted that the implications for the supply chain are “extensive” and could result in “smaller tier 2 and 3 suppliers filing for bankruptcy because so many other jobs and industries depend on the healthy functioning of automotive.” This video from WXYZ-TV Detroit | Channel 7 published prior to the strike describes the potentially widespread ripple effect.
Eshkenazi also cited the recent threat of a strike from UPS and the impact it would have had — which is a topic we covered at the time.
In our post, “Will the ‘Historic’ UPS Teamsters Win Impact Other Labor Negotiations?”, we cited coverage from Labor Notes that postulated the tough-stance negotiations that resulted in a historic contract for the UPS Teamsters may have a ripple effect across other industries.
In a July 19 post by Alexandra Bradbury and Luis Feliz Leon, the writers described the power the workers held within the negotiating process — largely due to their absolute willingness to strike.
“The profound seriousness of the strike threat, light-years from the dynamic in 2018 bargaining, is why the Teamsters have won so much already,” Bradbury and Feliz Leon wrote. “And if they reach a deal by the deadline, this will be the reason why—that UPS knew, Wall Street knew, the workers knew, everybody knew how very ready they were to walk.”
Describing various factors related to the negotiations, Bradbury and Feliz Leon said the Teamsters’ “powerful spot” was partly created by electing new leadership — aka Teamsters General President Sean M. O’Brien.
“The Teamsters United slate, backed by the rank-and-file movement Teamsters for a Democratic Union [TDU], won the 2021 election 2 to 1, closing the book on the long concessionary reign of James P. Hoffa,” the post authors wrote. “O’Brien made a campaign theme of his willingness, even enthusiasm, to strike UPS. … The international union encouraged member participation in the contract campaign, and gave locals and members the tools to mobilize themselves—campaign kickoff rallies, contract unity pledge cards, MLK Deliver on the Dream Actions, practice picketing. …”
Our post includes the various dynamics Bradbury and Feliz Leon described in this context — including a tidbit that could have a major impact on the UAW strike dynamics happening now.
“The Teamsters campaign at UPS is reverberating throughout the labor movement,” they wrote. “United Auto Workers President Shawn Fain, elected this year with the backing of a TDU-inspired rank-and-file movement, traveled to New York to rally with O’Brien.”
“All of our paths are parallel right now,” Fain told the outlet. “It's the same issues—ending tiers, the abuse of temporary workers, and low wages.”
Referencing the September 14 expiration of union contracts for 144,000 auto workers at the Big 3, Bradbury and Feliz Leon offered a nearly spot-on prediction: “A company-wide strike at one of the three looks likely, especially after United Auto Workers members elected a reform slate to lead their union. The new president, Shawn Fain, has pledged a contract campaign and a strike–if needed–to end wage tiers, and to put workers at the wheel of the transition to electric vehicles (EVs).”
The only detail the authors missed in their prediction was that the strike would be launched simultaneously against all three.
Some UAW workers are still on the job, however, since strike efforts have been selectively applied to specific factories — with the strike being strategically expanded based on UAW’s perceptions about the automakers’ responsiveness within the negotiating process.
On September 29, the strike was expanded to include 7,000 more UAW members at a Ford plant in Chicago and a GM factory in Michigan. Stellantis was spared from strike expansion at the last minute, due to a willingness to make additional concessions.
“The United Auto Workers expanded its strike to include two more facilities and an additional 7,000 workers, UAW President Shawn Fain said during a Facebook Live event Friday morning,” wrote Thai Phi Le, Senior Managing Editor of Automotive Dive. “Workers from Ford’s Chicago Assembly Plant and General Motors’ Lansing Delta Township Assembly factory went on strike at noon as negotiations failed to yield a tentative agreement.”
“Despite our willingness to bargain, Ford and GM have refused to make meaningful progress at the table,” Fain reportedly said. “…To be clear, negotiations haven’t broken down. We are still talking to all three companies. And I’m still very hopeful that we can reach a deal that reflects the incredible sacrifices and contributions our members have made over the last decade.”
The September 29 strike expansion increased the tally to more than 25,000 UAW members on the picket line at various locations.