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Over 3,600 UAW members went on strike against American Axle Manufacturing shortly after midnight Monday as contract talks broke down. Reports of slightly higher parts production contributed to modest stockpiling ahead of the walkout, delaying the potential for lost production by approximately 72 hours. The labor dispute effectively puts all full-frame production at General Motors at risk, including mid-size and full-size pickups and SUVs, unless both sides can come to an agreement. At Chrysler, parts shortages could potentially interrupt production of the full-size Dodge Ram pickup as well as the Durango and Aspen SUVs.
The magnitude of exposure is substantial at General Motors, with nearly 50% of daily production at risk due to the strike. The potential volume impact at Chrysler is also significant, accounting for just under 20% of daily production, as the Ram pickup represents a considerable share of total output.
Declining sales of full-size trucks are expected to persist in the short term as troubles in the housing market have negatively impacted demand from contractors and the skilled trades. Ending January inventories for full-frame trucks remain above the industry average, which has prompted a new round of promotions, including higher incentives and low-rate financing. Therefore, if the strike continues, any lost production would not be felt at the dealer level unless the strike continued for an extended period of time (i.e. weeks instead of days).
At this time, we do not expect the strike to result in significant levels of lost volume as negotiations can continue for the next five days with just one day of lost volume. Such a scenario would allow the UAW to maintain the position that it extracted the maximum concessions from the company without a material volume impact.
In 2007, the UAW concluded agreements which granted sweeping concessions to each of the Detroit Three manufacturers. Financially distressed suppliers have also been able to win labor concessions, adding to the positive outlook that American Axle will be able to secure an agreement that will support the company’s future competitiveness. The auto sector, particularly Detroit 3 manufacturers and dependent suppliers, continues to adjust to globally competitive pressures that contribute to lower wage scales. The competitive landscape is also forcing “Detroit” to finally address the shift in the economy from an industrial base to a service and information sector that has been deferred for too many years.
We will continue to monitor events and provide further updates if needed.
For questions, please contact Joe Langley,
Senior Analyst, North American Vehicle Forecasts,
at joelangley@csmauto.com or + 1 248 465 2832