The automotive sector is operating in a contradictory landscape at present. This year alone, it has been subject to pent-up demand driven by Covid, the aftermath of significant semiconductor shortages, and a looming global recession.
And, like all chemicals sectors – and their customer bases – the auto sector is at the coalface of evolving supply chain dynamics triggered by volatile energy costs.
But it is also initiating the step-change from a business model established over a century ago to another in relative infancy. The inevitable switch from the internal combustion engine (ICE) to electrically-powered vehicles is seen as a threat to union jobs.
The addition of strike action into this mix of market dynamics certainly hasn’t helped businesses operating within its value chains. To summarize, the Michigan-headquartered United Auto Workers’ Union (UAW) is lobbying for benefits including a four-day working week and a 40% pay increase (over 4.5 years).
With 35,000 on the picket line, thousands of cars lost from production along with US$200 million in corporate losses, a pledge to transition to electric vehicles with justice has been tabled.
UAW strike action began in earnest on 15 September when the union’s dialogue with the ‘Big Three’ automakers Ford Motor Company, General Motors (GM), and Stellantis – failed to broker a deal. Mack Trucks workers voted to join the picket line on 9 October.
As of 18 October, 34,000 UAW members – including over 4000 workers at GM plants across Canada – are taking strike action. Some downstream polyurethanes-focused UAW members had initiated strike action the month before.
On the one hand, Deutsche Bank estimates a potential loss of up to 35,000 vehicles from production since the strike action began. But on the other, just days before that damning estimate emerged GM reported having almost 450K vehicles in stock. GM has however conceded the strike cost the company $200 million in its first two weeks
‘A Just Transition’ to Electric Vehicle Production
The change management underpinning the switch from traditional to electric vehicle (EV) power is key to the strike action. UAW members are keen to protect their livelihoods against plant closures as EV production increases.
It is often said that EV construction requires fewer work hours than building ICE-driven vehicles. With this in mind, and to allay union members’ fears, GM conceded to a ‘just transition’ from gasoline-powered cars to EVs earlier this month.
Some experts say EVs will need more labor for installation, not less, than engines and transmissions.
- Tecnon OrbiChem founder Charles Fryer
But, says Tecnon OrbiChem founder Charles Fryer, the man hours required for making EVs compared to ICE-powered vehicles is itself a matter of dispute. True, the number of moving parts in an electric vehicle is lower than in a petrol-driven car.
However, Fryer adds. “Having analyzed the labor content of manufacturing effort involved, some experts say EVs will need more labor for installation, not less, than engines and transmissions. Specific requirements around the fitting of batteries, electric motors and power management systems are key to this analysis."
GM set out its view in a statement from its executive VP for manufacturing Gerald Johnson on 6 October. “The employee base needed in the future for EV production is very similar to what is needed for a comparable internal combustion vehicle today,” it said. That same day, UAW president Shawn Fain announced that GM had agreed to put its battery manufacturing plants under whatever broader UAW contract is ultimately agreed to.
“Maybe the fear of a reduction in workforces as manufacturing shifts towards EV construction can be diminished by these assurances,” says Fryer.
However, as the strike action itself plays out entire supply chains will be praying for a return to automotive sector stability.
'Delayed Impact' Potential
Tecnon OrbiChem business manager Jennifer Hawkins says the epoxy resins market participants she inquired about the ongoing strike are 'keeping a close eye.'
One distributor said the North American UAW members were probably, “In for a long fight," Hawkins says. “They think the US auto workers are slitting their own throats and alluded to workers in other regions being 'willing to work for less'."
"It's no big secret that automakers with plants in Asia and China – for now at least – gain a competitive edge due to its workers' willingness to be paid less.
"Other sources told me it was too early to say whether the strike would have a specific impact on epoxy resins or polycarbonate markets.
"Demand is still very low from all sectors and expected to remain that way until late Q1 2024," Hawkins concludes.
Polyamide engineering resins, for example, are widely used in the automobile industry. “In particular, polyamide 66 (PA 66) is used in automotive applications due to its superior heat resistance and durability,” says Tecnon OrbiChem business manager William Bann.
Are you interested in polyamide applications and the automotive sector?
“The strike has come at a challenging time for the PA market,” explains Bann. “Demand for PA resin – both polyamide 6 (PA 6) and PA 66 – has been in a downward slide since early 2023.
“Invista announced in early October the permanent closure of two plants at Orange, Texas, which produce adiponitrile and HMDA – important chemical intermediates in the PA 66 chain.
“The firm cited lower-than-expected growth and increased global supply as reasons for the decision to close the facility at Orange. There was no specific link mentioned between the auto workers’ strike and Invista’s announcement."
However, exactly how the shift to EV production might impact the auto sector PA resin demand hangs in the balance to some degree. Several key applications for PA resin are used under the hood in ICE-powered vehicles.
"Producers of PA resin were hoping for some stability to emerge in the fourth quarter, but the strike has changed the short-term outlook. Market participants are now shifting their attention to 2024, where uncertainty remains," Bann concludes.
If the strike continues, it will become an issue for PU market participants because auto has been the only sector demonstrating good demand this year.
- Tecnon OrbiChem senior consultant Regina Sousa
Polyurethanes in Monitor Mode
Tecnon OrbiChem senior consultant Regina Sousa said her contacts are in 'monitor mode'. However, it takes time to make an impact. "Up until recently inventories were said to be high."
"If the strike continues, it will become an issue because the auto sector has been the only one pulling in good demand this year, from a PU point of view, and this will cause havoc on an already weak market. Every other sector in the PU chain has been weak apart from auto for the last six months approximately."
Mobility company LM Manufacturing - a joint venture between Magna International and LAN Manufacturing - appears to be feeling the heat already.
Knock-on Effect Lay-offs
The firm provides seating - along with other assembly line solutions - to automakers including Ford. In response to strike action at the Detroit-based Ford plant it supplies, LM laid off over 600 workers on a temporary basis.
Another polyurethanes-focused operation Thrombert - which produces polyurethane wheels for applications including vehicles and electric forklifts - was an early UAW strike target, having experienced action from August.
On top of this, Sousa continues. "The strikes could be a blow to the US economy and may weaken it.
"A weaker economy is never good for PU buying interest as products for comfort like mattresses, furniture, and cars have longevity, meaning they aren't replaced when money is tight.
"PU demand is expected to be weak in Q4 and potentially in the first half of 2024. If the auto sector weakens, it’s more bad news I'm afraid."
Other Markets Insight
One US MMA producer primarily exposed to the automotive industry in PMMA told Tecnon OrbiChem's acrylates and fibers and intermediates expert Jaroslaw Cienkosz that it's the 'duration' of the autoworkers’ strike that matters most.
"A few months of strike will eventually harm the company. If parties head it off, several weeks will not hit them severely. Acrylate monomer contacts worried about it in conversations last week. They consistently talked about a delayed impact, if any," Cienkosz says.
Kaiyin Hu also considers the strike's longevity as the key factor in terms of potential impact on automobile supply chains. "If it lasts long enough, we will definitely see an impact on the PBT market. The engineering thermoplastic PBT is a key material in EV vehicle production. Its automotive market potential was explored in our blog post Engineering plastics for high-voltage automotive applications.
"Automotive is probably the only sector that has been keeping North America's PBT market afloat this year. Other end sectors - such as electronics and appliances - are underperforming. If the automotive sector goes down, it could have a devastating impact on PBT," Hu explained.
Striking The Balance
On top of the pay rise, the union is seeking an end to a tiered employment policy that underpays newer employees, the restoration of overtime and retirement benefits, and improved worker protections against plant closures as EV production increases. Also, the movement towards a four-day week has also been tabled.
Stellantis avoided a strike expansion during the week of 10 October after negotiations had progressed on cost-of-living adjustments, job security, and skilled trades labor. UAW also said that pay increases of 20% had been offered by GM, with a 10% increase in the first year, 20% from Stellantis, and 23% at Ford, through the life of the contract that ends in early 2028.
Last month, US President Joe Biden backed striking auto workers in Michigan during a visit to their picket line - a first for a sitting US president.