The recent expansion of a strike by U.S. auto workers has cast a spotlight on a critical issue within the automotive industry, causing significant distress among dealers who sell and service vehicles produced by General Motors (GM) and Stellantis. At the core of this matter lies the intricate web of automotive supply chains, where the selling and installation of parts represent one of the most profitable but also vulnerable aspects of the business.
Affect on Supply Chains
The strike underscores a fundamental aspect of the automotive industry’s operation: its heavy reliance on the “just-in-time” delivery system. This system, while highly efficient when functioning smoothly, allows little room for disruptions. By strategically disrupting parts delivery, the striking workers have exacerbated an existing problem – the challenges dealers face in sourcing crucial components.
One automotive technician, Richard Fasulo, based in Wappinger, New York, who works at a Cadillac franchise dealer and a used car dealership, sums up the situation succinctly, stating, “It’s going to become near impossible to get a lot of these parts.” His sentiment reflects the frustrations of many in the industry, now grappling with unprecedented uncertainty. The strike, targeting 38 parts distribution centers owned by GM and Stellantis, has left dealerships in the unenviable position of having to inform their customers, “We don’t know when we can fix your vehicle. It might be indefinitely.”
Insurmountable Backlog of Repairs
For dealerships, the crux of their profitability lies in selling repair parts and service returns. These activities yield robust gross profit margins, often exceeding 40%, particularly for industry giants such as AutoNation and Lithia.
Howard Drake, a GM dealership owner based in California, echoes the sentiment of many in the industry, stating, “If your car doesn’t work, you’re just stuck. It’s just mean, don’t you think?” He had anticipated adverse consequences for customers, potentially facing limited choices, but the current reality surpasses his expectations. A parts distribution center devoid of manpower has left dealers like him with an insurmountable backlog of cars awaiting repairs, representing a frustrating and costly consequence of the ongoing labor dispute.
Why is UAW on strike?
The United Auto Workers (UAW) is on strike against the Detroit Three automakers — General Motors, Ford, and Stellantis (which owns Chrysler) — after failing to reach a deal on a new contract. The strike began on September 15, 2023, and is the first trilateral strike against the three automakers in the union’s history.
The UAW is seeking a number of improvements in the new contract, including:
Higher wages and benefits: The UAW wants a 40% wage increase over four years, as well as improved health care and pension benefits. The automakers have offered a roughly 20% pay bump and other concessions, but the union says these offers are not enough.
Elimination of the two-tier wage system: The UAW wants to end the two-tier wage system, which results in many workers earning less than the average wage of $32 an hour. The automakers have said they are willing to phase out the two-tier system, but the union wants it eliminated immediately.
Job security: The UAW is also seeking job security guarantees, including the right to strike over plant closings. The automakers have said they are committed to preserving jobs in the United States, but they have not agreed to all of the union’s demands.
In essence, this strike, borne out of a labor dispute, has illuminated the delicate intricacies of the automotive industry. Timely parts delivery and service are the lifeblood of dealers’ profitability, and the ramifications of this strike extend far beyond the picket lines. The uncertainty surrounding when, or if, vehicles can be repaired serves as a stark reminder of the fragile equilibrium that underpins this critical sector of the American economy. The strike underscores the challenges of balancing just-in-time supply chains with the resilience and continuity needed to keep vehicles on the road and dealerships in business.