UAW – The OM Blog by Heizer, Render, & Munson

OM in the News: Robots Are Looking Better to Detroit

United Auto Workers (UAW) members recently approved a labor contract with Ford, General Motors, and Jeep maker Stellantis that included a record 25% wage increase over 4 years and marked the sharpest labor-cost increase for the companies in recent memory. The auto makers did avoid a strike, but the longer term cost was great, reports The Wall Street Journal (Jan. 15, 2024).

Robots weld the body of a Model Y EV at a Tesla factory

The effect from the deals in Detroit quickly rippled through the industry, with Toyota, Hyundai and other nonunionized automakers increasing wages to stay competitive. The contracts were richer than Detroit had planned for, and the auto makers are strategizing ways to blunt the increased costs. Ford said the new terms would add $900 in cost per vehicle by 2028.

So the firms are looking to an old friend to help offset rising labor costs: robots. For decades, car companies increased automation inside their factories. Now, they are looking even more seriously at this approach, to address the rising labor bill and take advantage of more sophisticated technology. Competition from newcomers like Tesla, which has been more aggressive in deploying robots, is also nudging more traditional auto manufacturers in this direction.

The global auto industry is a top consumer of robots, having installed 136,000 new industrial robotic units in 2022. Often these so-called cobots work alongside workers to access hard-to-reach spots or perform tasks that are particularly physically demanding.

Dozens of new battery and EV plants in the works will also open the door to broader use of high-tech systems. It is easier and less costly to install robots in a new facility versus retrofitting an existing one. Plus, it is more streamlined to have updated systems that “speak” to each other smoothly, as opposed to popping in a new machine among older ones.

The UAW may have attained major wage increases, but the trend is making its members nervous about the prospect of machines replacing jobs. “The companies have used technology as a way to cut jobs instead of interjecting robots and technology to make our jobs easier,” says the UAW president.

There are risks to automating. Adding robots to a process for the first time can introduce quality problems. And whatever machines gain in terms of productivity can be zeroed out by the needed personnel to fix or program robots.

Classroom discussion questions:
1. Discuss the advantages and disadvantages of robotics in the auto industry.
2. What is Tesla’s edge?

OM in the News: The UAW Strike and Supply Chain Tiers

As the United Auto Workers strike continues, risks of disruption are compounding for automotive supply chain managers, reports Supply Chain Dive (Sept. 20, 2023).

The union has already idled production lines at three plants in response to failed negotiations with Ford, GM and Stellantis. As the UAW threatens further work stoppages, supplier health may be at risk.

“Depending on how deep this strike goes, it can be really challenging for the suppliers to stay afloat. Risk is particularly focused on the Tier 2 and Tier 3 suppliers,” said one industry expert. He added: “Tier 1 firms should be talking to downstream suppliers, asking: ‘How are your financials? When we do get out of this, are you going to be able to ramp back up?’”

To be proactive, supply chain managers can streamline various processes which include order intakes, raw material and labor planning.

Order cancellations from the affected assembly plants can bottleneck the entire supply chain. Suppliers can continue to build parts regardless of canceled orders, but if the customer refuses to accept deliveries, then suppliers need to pay to store those parts. Demand for the parts and materials will decrease or even cease as the automakers cancel firm orders for parts and future orders in the coming weeks and even months, depending on the duration of the strike.

As a result, the supply chain will likely feel lingering impacts even when the strike eventually ends. For instance, suppliers who may have furloughed workers might take a while to get operations up and running. If more automaker plants get impacted, downstream suppliers may need to reboot their systems.

Ripple effects will move across the entire supply chain. Tier 1 suppliers with strong balance sheets will be fine. But Tier 2 and Tier 3 suppliers may struggle with cash flow as orders are canceled. Secondary effects are already being seen. GM is temporarily laying off employees at its Fairfax plant — which is not included in the first wave of strikes — as that facility’s operations are disrupted from a lack of stamping parts from the Wentzville facility, which is on strike. While supply chain managers may be able to keep things moving, operations get tricky if the UAW goes after engine plants. Shutting down plants where engines are built will cripple other plants across the U.S., Canada and Mexico.

Classroom discussion questions:

What are Tier 2 and Tier 3 suppliers? Give an example of each.
What are the issues underlying the UAW strike?

OM in the News: Casting Aside Gas Engines

VW ID.3 electric cars assembled in Germany,

For more than a century, auto makers continually honed their gas and diesel engines, sparring over which had greater power, better fuel efficiency, more durability or delivered a smoother ride. Now, they are sending the combustion engine to the scrap heap and are pouring billions of dollars into electric motors and battery factories. Instead of powertrain specialists, they are hiring thousands of software engineers and battery experts.

The transition is upending the automotive workplace, writes The Wall Street Journal (July 24-25, 2021), from the engineering ranks and supply chain to the factory floor. Parts makers that for generations have made the same pieces for engines and transmissions are jockeying to supply electrical components.

Unions in the U.S. and Europe fear a steep loss of jobs tied to making engines and transmissions. The UAW has warned that the move to EVs, which require fewer parts and 30% less manpower to produce, could jeopardize tens of thousands of U.S. jobs. A Morgan Stanley report estimates full transition to EVs could lead to 3 million lost automotive jobs globally. EVs are simpler mechanically than gas-powered ones. Their drivetrains employ fewer than 20 moving parts, compared with hundreds for the gas-powered version.

“It’s been a fun ride,” said an engineer with 40 years in the industry. “But I think we’re coming into the homestretch for the conventional engine.” Auto executives have concluded that they can’t meet tougher tailpipe-emissions rules globally by continuing to improve gas or diesel engines. And they don’t intend to develop any new gas engines. “I don’t know where to spend money on them anymore,” said GM’s President. Developing a new gas engine can cost $1 billion and involves 100’s of suppliers. Over the past several decades, auto makers rolled out 20-70 new engines annually. That number will fall below 10 this year, and then essentially go to zero.

The industry’s rapid shift in focus has left suppliers that have long made parts for gas engines hustling to reinvent themselves. “We don’t want to be left making the best buggy whips,” said one Michigan auto supplier.

Classroom discussion questions:

What strategy should auto parts makers take?
Will the transition to EVs be complete this decade? Why or why not?

OM in the News: Mississippi’s “Right-to-Work” vs. the UAW

“The United Automobile Workers, desperate to make inroads in the anti-union South where Toyota, Volkswagen and other foreign automakers have assembly plants — has never tried a unionization drive quite like the one at the Nissan plant here in Canton, Miss.,” writes The New York Times (Oct. 7, 2013). It has enlisted thousands of union members in Brazil to picket Nissan dealerships there and sent a team of Mississippi ministers and workers to South Africa, where Nissan has an assembly plant, to try to embarrass the company with accusations that it violates workers’ rights at the Canton plant.

At a time when the U.A.W. has fewer than 1/3 of the 1.5 million workers it had in 1979, its organizing push in the South has taken on urgency and is being watched closely by labor leaders across the country. “It’s a life-and-death matter for the U.A.W. to succeed in the South,” says a U. of California prof. “If the U.A.W. fails to win at the foreign companies’ plants in the South,” adds an industry expert, “they will pull down wages at General Motors, Ford and Chrysler.” The union faces rough going in Mississippi, considering the embarrassing loss it suffered in 2001 when workers at Nissan’s plant in Tennessee voted two to one against joining the U.A.W.

“We’re a right-to-work state,” says a Canton businessman. “Back in the Industrial Revolution I could see why unions were needed, but we’re now in 2013, and I don’t see the need.” For Mississippi, landing Nissan was a coup. The 10-year-old auto plant was the state’s first, and its work force has climbed to 5,200, making Nissan the state’s second-largest private employer. Nissan has invested $2 billion in its state-of-the-art plant, which uses 1,200 robots. The base wage for most of the plant’s workers is $23.22 an hour, making them the envy of many blue-collar workers in Mississippi.

Classroom discussion questions:

1. Justify the positions of the union, of Nissan, and of the state.

2. Why is this a “life or death matter” for the UAW?

OM in the News: Detroit’s Last Car Plant Standing

The last auto plant in Detroit generates $2 billion in annual profit for Chrysler

There is a section of Detroit that sums up the city’s decline, a grim landscape of boarded-up stores, abandoned homes and empty lots that stretch all the way to the river. And in the middle of it stands one of the most modern and successful auto plants in the world. More than 4,600 workers staff Chrysler’s sprawling Jefferson North factory nearly around the clock, writes The New York Times (July 16, 2013), making one of the most profitable vehicles on the market, the Jeep Grand Cherokee.

“Everything is aligned there,” said one auto analyst. “You have a hot-selling, high-profit vehicle, a flexible labor agreement and a facility that the company has invested in instead of abandoned.” Annual production has skyrocketed from fewer than 100,000 vehicles a year in 2009 to more than 300,000. And a work force that had dwindled to 1,300 people has more than tripled. In June, Grand Cherokee sales rose 33%, as buyers paid as much as $50,000 for the model.

The profits and productivity at Jefferson North put it on par with the most efficient luxury car plants in Germany and the best factories operated by Japanese automakers in the southern US. Today, Jefferson North stands as the last auto assembly plant in Detroit’s city limits, which once had nearly a dozen of them.

The company has taken advantage of the groundbreaking 2007 labor agreement with the United Automobile Workers union, to bring on new employees at an entry-level wage under $16 an hour, compared with the $28 earned by longtime union workers. Since its bankruptcy, Chrysler has hired two full shifts of new workers, over 2,200 people, at the lower wage.

Discussion questions:

1. Why is this plant successful?

2. What operations decisions have helped Chrysler?