How the GM strike could start a Midwest recession
The nearly 50,000 striking General Motors workers are just the beginning. Soon hundreds of thousands of people could be off the job because of the walkout.
The strike by the United Auto Workers union could even tip large swaths of the Midwest into recession.
Related: GM strike reaches day five and the pain is spreading
The union and GM management have kept negotiating but there was no sign of a quick conclusion to a walkout that began Monday over pay, benefits, the use of temporary workers and the fate of several plants.
GM isn’t the only one affected by the work stoppage.
The company said some 10,000 American companies supply it with products and services, making things that end up on the cars like seats, tires, brake linings, windshields and computers chips. It also includes suppliers that sell GM things it needs to operate — hydraulic fluid for the equipment on the assembly lines, solvents used to keep the plants clean, and electricity to keep the plants’ lights on.
The impact of the strike could ripple throughout that vast community of businesses that do work for General Motors. They are spread throughout the United States but many are concentrated in the Midwest. Many of the companies have already halted or will stop production on the products they sell to GM.
The auto industry’s supply chain operates on a “just-in-time” basis. That means parts are delivered as close as possible to the time they are put on a car.
The Center for Automotive Research, a Michigan think tank, estimates that for each hourly worker at GM, there are three to four workers in its base of suppliers supporting the company.
Even if a supplier provides parts to multiple automakers, cutting back the production it normally sends to GM means there’s a good chance it’s also cutting back hours and employment. But numerous GM suppliers contacted by CNN Business did not respond to a request for comment on their plans.
“The impacts are going to start soon. Plants are starting to shut down. Multipliers are going to start hitting,” said Kristin Dziczek, vice president of industry labor and economics CAR.
And the 10,000 GM suppliers spread across the United States are only part of the affected base of manufacturers. For example, a supplier making engine parts must buy the steel or aluminum used to make those parts.
“Generally speaking most of our suppliers have their own suppliers,” said Dan Flores, a GM spokesman.
Restaurants, retailers and other businesses in Midwestern towns where most of GM’s plants are located are also likely to take a hit because they depend on money spent by GM employees and the employees of the automaker’s suppliers.
“The impacts are quite localized for the first few days. During that time, cities in which there are assembly plants see an immediate drop in consumer purchases — and immediate drop in tax revenues — as UAW workers stop earning money and start conserving cash,” said Patrick Anderson of Anderson Economic Group in Lansing, Michigan. “After approximately one week, you can expect the damage to spread up the supply chain.”
As those businesses start to cut back, the multiplier effect could bring job losses to as much as 300,000, including the strikers, Zandi said.
Zandi and other economists say the Midwest’s economy won’t be tipped into recession overnight, or even in a couple of weeks. But if the strike drags on for months, states such as Michigan, Ohio and Indiana could end up in recession later this year or early next year.
The region is already feeling pressure from tariffs imposed in the US trade disputes with China and allies.
“The Midwest is already on the front line of the trade war and they’re feeling it,” said Zandi. “Great swaths of the farm belt are in recession already. Farm foreclosures are up. Manufacturing isn’t far behind. The reality is it’s not one thing that causes a recession, it’s a lot of things. The GM strike is one of those things.”
The impact of the strike can be felt outside the United States as well. The automaker confirmed Wednesday that it had temporarily laid off 1,200 workers in Oshawa, Ontario, who were building the older versions of the Silverado and Sierra pickups there because they couldn’t get the parts from GM’s US plants.
One area that isn’t likely to suffer layoffs in the near term is GM’s network of dealerships, which are privately owned businesses and not part of the company. GM said it has a sufficient supply of vehicles on hand to fill a couple of months of demand. But if the strike does stretch on long-term, those dealerships’ staff could be hurt from reduced sales and commissions as well.