The United Auto Workers strike has entered its fifth day, and already the Treasury Department has weighed in on the potential economic fallout from the standoff. 

The UAW is simultaneously negotiating with the “Big Three” automakers — General Motors, Ford and Stellantis — in an effort to secure a new labor contract for roughly 146,000 workers. 

If it continues or expands, the strike could have far-reaching consequences at a moment when supply chains are still rebounding from COVID-era disruptions, says Nada Sanders, distinguished professor of supply chain management at Northeastern.

The UAW is asking for wage increases of more than 30% over the course of four years, saying that workers deserve a larger share of record profits. The companies in turn say that the concessions required to meet UAW’s demands would hamstring efforts to transition to electric vehicles.

The targeted strike has remained limited in scope, which has some labor experts stating that they aren’t too worried — provided the parties come to a timely resolution — about big shocks to the economy. But should the talks continue for some weeks, it could send ripples throughout the supply chain. Northeastern Global News spoke to Sanders about the cascading effects a prolonged strike would have on the companies that supply the auto industry. Her comments have been edited for brevity and clarity.

Can you explain how the UAW strike is influencing the auto supply chain, and how the companies that supply the ‘Big Three’ automakers are being impacted?

This is the largest industry in our economy, comprising close to 3% of the GDP. Really, when you look at the numbers, it’s a huge component of the overall economy, and what we all should collectively know about supply chains is that there is this ripple effect that impacts what are called first-tier suppliers — those that supply to them — and then you have second-tier suppliers that supply to the first tier, and you have the third tier that supply to the second, and so on. 

They’re all linked together. If the negotiations don’t pan out, they’re going to expand the strike in tiers. If they expand to some of the trucks — the truck production, the pick-ups, and so forth — there will be significant propagating effects, especially if the strike goes beyond a couple of weeks. It’s going to be felt very seriously.

When we forget about the union workers and start to look at the supply chain ecosystem consisting of the first-tier supplies — those that supply transmission, breaking systems, steel and so on — and the second and third tiers, collectively you’ve something close to 700,000 supplier jobs. There’s something like 5,600 U.S. suppliers alone. 

Here’s the other part that I think is really important: they’re not all the same size. Some are pretty big and they are going to be OK; but some are really small. When you get into that second or third tier, some are supplying maybe 20% of their capacity to the auto industry. But some are supplying 80% or more to the auto industry. 

This is what I think the concern is — that you’re going to see these cascading shutdowns and then bankruptcies for these really small suppliers who barely got through the eight-week COVID shutdown, and then had to deal with the semiconductor crisis. When you start to think of the economy as a whole, it starts to cascade out to a whole host of industries. It has the potential to be really serious.

What are the biggest risks facing suppliers, particularly the small- and medium-sized enterprises, as the strike continues?

I think right now the cash flow and the salaries are the biggest risks. I saw one supplier in Michigan talking about laying off 300 people. I saw — believe it or not — we’ve got a big supplier in Germany, and they’re talking about layoffs. Obviously we’re talking about the U.S. here and the Big Three, but to think that they only supply from the U.S. is not true. 

The smaller ones are already trying to eliminate overtime or extra shifts, you know, cutting back. U.S. Steel is already putting some of their furnaces in idling mode where they’re not producing. They’re trying to hedge. At some point, you’ve got so much inventory that it’s just sitting there, so you shut down, and then your supplier shuts down. 

It also has ripple effects across industry sectors. Just look at freight. A large part of the freight that is moved across this country consists of cars and supplies for the auto industry. We’re talking about a large swath of the economy being impacted.

Can you speak a little bit more about how — and when — this standoff might end up affecting prices and the end consumer?

It is really hard to say. One of the reasons why this is so dire is our supply chains still aren’t healthy to begin with. The auto supply chains are still somewhat fragile from COVID. We were just talking about chips not too long ago, so to say that these are really robust, healthy supply chains that have ample inventory and are functioning at their peak is not correct. So we’re not in a good place.

Obviously it’s going to take months before this gets to the consumer, but it’s going to take even longer to fix. But how long it actually takes is going to depend not only on how long this goes on, but the strategy the UAW takes, and I don’t believe they have revealed what the next phase is going to be. Assembly lines are really complicated, and they have chosen three plants that are final assembly, which are not very critical in terms of that production supply chain. 

What happens if they choose to pull the plug further up in the production process? It starts to wreak havoc further down the line in one direction, and in the other direction. I’m not trying to be evasive, but I don’t want to speculate; because this could be really severe, really quickly — or not so much. We’re going to find out more on Friday. 

Either way, I think if this goes on beyond two or three weeks, we’re really going to start seeing some devastating effects.

In light of this potentially catastrophic shock to the auto supply chain and the broader economy, where do you see the onus in terms of whose responsibility it is to rectify this situation? To stop this from snowballing in the way you describe?

Well, let’s have a look behind the curtain. As a lay person, we have seen record profits in the auto industry. What I have seen is that, post-COVID, workers are asking for more, and I think as a society, we have to understand that global supply chains are needed for all of us — in every industry sector — to get the goods that we want. At some point we have to come in and offer incentives to manufacturers to be able to share in their profits and show mercy. 

Tanner Stening is a Northeastern Global News reporter. Email him at t.stening@northeastern.edu. Follow him on Twitter @tstening90.