Analysis: A long strike at GM would snarl the metals supply chain

The longer the United Autoworkers’ strike against General Motors continues, the more problematic it gets for metals and other suppliers, according to several sources familiar with the automotive supply chain.

Nearly 50,000 hourly employees represented by the UAW union went on strike against GM in the US on Sunday after failing to reach a new collective bargaining agreement with the company.

“A week or less is not a problem,” a former global raw materials procurement executive with a major carmaker said Tuesday. “More than a week, and you will see metals service centers and steel mills put action plans in place to curb production.”

He added that GM’s stamping plants, which take steel or aluminum sheet from producers or metals distributors and form it for carmakers, “are not stamping; they are zeroed out until further notice.”

Now a consultant to the industries, the former executive noted that steel service centers and mills tend to keep at least two weeks of just-in-time (JIT) inventory for the automotive sector.

What could happen, he explained, is that service centers would delay releases of any open orders from steel mills — and this would create even more steel supply in the chain because of already soft mill order books.

Total domestic steel shipments through July to all automotive market outlets are down 7.7% compared to the same period a year ago, totaling 7.35 million st for the first seven months of 2019, according to data from the American Iron and Steel Institute.

“Suppliers who supply JIT to the assembly plants will be impacted immediately,” said Jeoff Burris, founder and principal of Plymouth, Michigan-based Advanced Purchasing Dynamics. “Seat suppliers for example have plants very close to OEMs and ship multiple times per day to assembly plants. They have limited availability for storage.

“Other suppliers will stop production soon as well, as they do not want their inventory to balloon,” Burris added. “When they stop their production they will also curtail orders from their suppliers.”

He noted that if it’s a quick strike, there will be little impact. “I believe most of the Tier 1 suppliers will take actions within a week to curtail production — including layoffs and schedule adjustments,” Burris said.
QUANTIFYING THE IMPACT

GM’s share of the North American vehicle market is about 17% and the company produced some 2.9 million vehicles in the US last year, according to its annual report.

That breaks down to about 8,000 vehicles each day not rolling off its assembly lines during the strike.

And with slightly under a ton of steel used in the typical light vehicle, that equates to roughly 8,100 st/day as the impact on steel.

Based on the same GM data and calculated using 400 lb of aluminum/vehicle, some 3.2 million lb/day of aluminum would be affected.

An aluminum trader of A380 grade said Monday that the strike would only contribute to an already sleepy aluminum market. “The GM strike should slow everything down and, I assume, [be] negative for prices,” he said.

“I assume they will pretty quickly stop taking castings. Some things will come to a screeching halt. Everything runs in a just-in-time situation; they don’t want a lot of inventory,” he added. “There will be a lot of pressure on GM. They will lose sales to Ford or Toyota.”

The former procurement executive, however, noted that prior to a union contract expiration, GM “typically has 50 days of inventory on hand to fill its dealership network.”

From what he heard as of Tuesday, “The union and GM are still far apart.”
Source: Platts