Labor Relations in the Automotive Industry

The once-staid automotive industry is transitioning into a modern era defined by the development of electric vehicles, increasingly sophisticated technology, constant supply chain issues, and a labor shortage propelled by demographic and economic turmoil. Though auto manufacturers are viewed as locked into unionization, the changing auto market is opening up opportunities for companies to operate non-union plants and supply chain businesses to keep their prices low by maintaining non-union workforces. During this transition period, labor relations become a significant factor in organizational success because engaged employees and their employers have a shared purpose. The following sections discuss the common labor relations issues in the automotive industry and the need to prepare now for the accelerating changes. 

Common Labor Relations Issues Among Automotive Suppliers

The major automotive companies are unionized and have been for decades. In fact, the automotive industry’s workforce has been comprised of what people think of as the stereotypical union worker. Auto manufacturing has employed workers as blue-collar as workers in the construction industry. The image of mostly men working production lines is one of America’s historical images. Notice the word “historical” because the auto manufacturing floor looks entirely different today as robotics and artificial intelligence manage many jobs that employees once handled.

The automotive industry has significantly changed, meaning its suppliers must adapt to remain competitive. Because the major auto manufacturing companies are unionized, which comes with increased labor and administrative costs, they are looking at two areas where they can manage costs: preventing unionization in new manufacturing plants producing tech-based vehicles like electric cars and managing costs in the supply chain. The automotive supply chain is large and complex because of the myriad of components and technologies that go into producing a vehicle, giving labor unions numerous targets. 

Let’s first look at the common labor relations issues among automotive suppliers trying to manage their costs to remain competitive while maintaining a positive organizational culture and engaged workforce.

Labor shortage

  • There is a shortage of workers with the technology skills needed to support internal combustion engine manufacturing and next-generation automotive products development and manufacturing. Lynda Ennis, founder and CEO of Ennis & Co, said the automotive sector is “predicted to face a global shortage of 2.3 million skilled workers by 2025 and 4.3 million by 2030.” Difficulties with employee retention exacerbate the labor shortage.
  • There is a reluctance of members of younger generations to enter the manufacturing industry or to accept what they consider blue-collar jobs requiring physical labor rather than technical skills.
  • There is a shortage of truck drivers is expected to grow to 160,000 by 2030.
  •  There is an exodus of baby boomer technicians and laborers in what is called the “Great Retirement,” as all baby boomers will be 66 years old (retirement age) or older by 2030.
  • The automotive industry has become so technology dependent that it competes with the technology industry for talent. 

Lack of Engagement

The COVID pandemic severely impacted the automotive industry workforce because remote work was impossible for most jobs. The massive decline in sales, made worse by component shortages like computer chips, led to layoffs and wage decreases. There is also significant uncertainty as the auto industry transitions to electric vehicles, requiring new manufacturing plants and components, new skills and fewer employees. Lack of job security is a significant driver for low employee engagement and a common labor union issue.

Supply chain issues

A 100-page discussion on supply chain issues could be written. From a labor relations perspective, automotive suppliers are dealing with some of the following situations:

  • Rapidly increasing labor costs
  • Sudden changes in corporate automotive customer orders due to materials shortages, port delays, etc., leading to suppliers experiencing either layoffs or worsening labor shortages when furloughed workers won’t return
  • COVID-related lockdowns remain a risk in some major sourcing countries, which threatens job security for many employees

Need for flexibility to address labor shortages

Pursuing skilled workers and workers with technology knowledge who can be successfully trained requires automotive companies to be flexible. Employee attitudes toward manufacturing work have changed, and employers need to adapt through flexibility.

The Manufacturer’s Alliance Foundation’s research found that manufacturers need to offer flex time, split shifts, part-time work, and swap shifts to attract and retain workers. “Unions used to negotiate simple forms of this, but the kind of flexibility demanded today is way beyond the shop steward deciding who gets the overtime.” Knowledge workers can work remotely, but how do you entice a new generation of workers to choose a production job requiring onsite work? 

The Foundation says manufacturers will have to offer some of the same things that IT workers enjoy. It suggests cross-training, assembling smaller teams, and eliminating direct management control over task completion (employee autonomy). Workers should be able to get the work done without the need for specific hardline scheduling and have the flexibility to add extra shifts for personal reasons, help a coworker, or take an afternoon off to care for family members. 

Need to control pricing impacts workforce

The law firm Foley & Lardner wrote, "In the current environment, with inflation and significant price volatility, suppliers (and OEMs) are rethinking the traditional structure for component contracts. Long-term contracts at a fixed, or even declining, price may no longer be practical." Suppliers are likely to begin negotiating shorter contracts which could help them avoid unexpected layoffs through better pricing control.

It’s difficult for employers to commit to long-term wage and benefit increases when price volatility is triggered by events like global supply chain backlogs, increasingly scarce resources, government regulations, inflation, and the transitioning automotive industry. A related issue is that the utilization of a lean, just-in-time inventory management strategy has led to excessive overtime to expedite shipments and shutdowns due to inventory shortages. These actions attract labor unions looking for employees experiencing burnout, loss of job security, and other human resources issues.

labor relations in the automotive industry

Pro-union environment

Since auto manufacturers have been unionized for decades, the pro-union government often presents them as proof that unions are good. For example, President Biden visited Milwaukee’s Labor Fest for the 2022 Labor Day, and most of his speech concerned labor unions, saying they built the middle class. At the September 2022 Detroit Auto Show, he spoke to union workers, including United Auto Workers (UAW), praising union workers as a reliable labor investment and saying that union labor is quality and long-lasting. These are just two examples. The National Labor Relations Board (NLRB) is advancing the pro-labor agenda through its decision-making authority and changing labor laws through bureaucratic decision-making.

Why the Automotive Industry Needs Labor & Employee Relations Expertise  

All of the factors just discussed impact labor relations, making prioritization of employee engagement crucial to long-term success. Employee engagement not only plays a role in employee retention; it influences the employee experience and performance and the organizational culture. As the automotive industry continues to embrace digital and innovation, the entire industry, including automakers, original equipment manufacturers (OEMs) and original design manufacturers (ODM), must adapt and change.

Labor relations is concerned with preventing and resolving employee problems that arise from work performance and is also focused on developing a positive organizational culture. The labor relations expert is skilled in improving employee relationships through: 

  • Communication
  • Interpreting business policies
  • Performance management
  • Addressing employee complaints or grievances
  • Providing labor relations advice to managers and supervisors
  • Employee recognition

If there is a union, the labor relations expertise includes negotiating and administering collective bargaining agreements and consulting with the union representative.

What may be missed is the fact that positive employee engagement makes a difference in employer branding, which in turn impacts the ability to attract skilled labor. In addition, the automotive industry is going through many changes simultaneously, one of them being the push for electric vehicles (EVs). Future manufacturing plants or facilities may prevent union organizing even though labor unions are deeply embedded in the big automotive companies. Employers who can meet the needs of the younger generation in terms of schedule flexibility, benefits, employee voice, interesting tech work, etc., will make a union unnecessary. 

Labor Relations Consulting in the Automotive Industry 

What keeps the automotive industry leaders up at night concerning labor relations and labor unions? What does labor relations consulting in the automotive industry deliver? Bottom line: Consultants solve problems. 

  • Identifies the need for leadership training in labor relations at all organizational levels
  • Assists with developing employee engagement strategies
  • Conducts union vulnerability assessment
  • Designs employee engagement surveys
  • Assists with union campaign preparation
  • Identifies methods for improving internal communication
  • Assists with preparation for negotiations of a collective bargaining agreement
  • Union campaign consulting that includes opposition research, campaign strategizing, campaign websites, etc.
  • Identification of employee engagement tools, including social media, campaign posters, etc. 

IRI Consultants In the Automotive Industry

IRI Consultants offers clients in the automotive industry unique qualifications. The company’s roots are in Michigan, and it was established when the Big Three automakers dominated the automotive industry. With over 40 years of labor relations consulting in the automotive sector, IRI Consultants: 

  • Bring a depth of knowledge that only comes with working onsite in automotive plants, manufacturing, and engineering facilities.
  • Design and deliver leadership training in communication and labor relations that is specific to the manufacturer, OEM, or ODM facility
  • Strategize to develop an organizational culture where unions aren’t necessary, identifying union vulnerabilities at the same time
  • Identify areas for improvement in employee relations by identifying concerns and weaknesses in employee-management relations
  • Assist with addressing labor-related matters
  • Assist with developing a response to a union organizing drive
  • Deliver an integrated approach to change management to help organizations remain competitive through the many automotive industry changes taking place at the same time
  • Work with senior leaders to strengthen employee voice through employee engagement surveys, establishing Employee Advisory Groups, developing shared governance, and taking other steps
  • Strengthen team collaboration and performance
  • Identification of potential micro-bargaining units
  • Evaluation of unionization in the supply chain that increases union vulnerability
  • Develop a communication strategy for sharing the reasons employees benefit by not joining a union
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What Automotive Industry Companies Need to Do Now To Prepare for What's Ahead

What can labor relations consulting in the automotive industry do for automotive companies? First, let’s briefly discuss the impact of electric vehicle production and unions. The labor unions have been concerned about the country moving too fast to produce electric vehicles. The unions fear electric vehicle production would require fewer workers because the cars don’t have engines to assemble and require significantly fewer parts. Another fear was that the union would lose thousands of potential union jobs when new electric-vehicle related plants were built.

For example, Ford announced it’s building four factories in Kentucky and Tennessee. Three are for electric vehicles. Locating them in the South was a concern because they are both right-to-work states. To overcome the union resistance, Ford announced it would invest billions of dollars in producing electric vehicles in the Midwest, creating 6,000 union jobs. Ford also agreed to convert 3,000 temporary jobs to permanent full-time positions before the date the UAW contract expired. 

Politics a Powerful Force for Unions

The economic analysts and the UAW agreed that the government would have to help support the electric vehicle industry. The Inflation Reduction Act allows for a $7,500 consumer tax credit if the passenger vehicles are assembled in North America and if specific rules concerning materials and components for EV batteries are met. So much politics is involved. The idea is that some vehicle manufacturing would come home to the U.S., and union workers would get hired. The UAW spent $1.25 million to support federal candidates in the 2020 elections, and 99 percent were Democrats. In February 2022, the U.S. Departments of Transportation and Energy announced they were spending $5 billion to create a network of EV charging stations per the Bipartisan Infrastructure Law. 

When General Motors announced it had set a goal to produce only battery-powered vehicles by 2035 with the exclusion of heavier trucks, unions started worrying. First, workers will need to learn new skills. Second, as mentioned, fewer workers are required to produce electric vehicles. Union workers making transmissions and engines for gas-powered vehicles are particularly vulnerable. A UAW paper said Ford and Volkswagen executives expect EVs to reduce the labor hours needed to produce a vehicle by 30 percent. General Motors must negotiate a new union contract in 2023, and top issues include wages and job security. Battery manufacturing is considered a parts-supply function that pays a lower wage.

automotive industry

Prepare Now

Preparing now for the accelerating changes in the automotive industry is important to preventing union organizing or managing union negotiations. Elon Musk, CEO of Tesla, challenged the UAW to try organizing his employees at the Fremont, CA, plant. He tweeted, “Our real challenge is Bay Area has negative unemployment, so if we don’t treat and compensate our (awesome) people well, they have many other offers and will just leave! I’d like hereby to invite UAW to hold a union vote at their convenience. Tesla will do nothing to stop them.” 

At the heart of his message is that positive employee relations, fair pay, employee voice, and the other ways employers treat workers will determine how much inroads a labor union can make. As the automotive industry, including its supply chain, continues to manage continuous disruption and a transition to electric vehicle production, the time is ripe for each business to bring in a labor relations consultant who can assist management with determining how to strengthen positive employee relations, employee engagement, and employee voice. 

Each company should consider the impact of automation and going digital, determine how it can accommodate employee needs for flexibility and improved benefits, add hiring and work incentives, and develop cross-training programs for skills upgrading for better recruitment and retention. It begins with leadership training. Gallup found that the manager accounts for 70 percent of team engagement variance, and said, “The manager-employee relationship is the most important relationship at every stage of the employee journey.”

Examples of Automotive Supplier Actions to Build Employee Engagement

What do the executives in the automotive supply chain say about talent management? The Q4 2022 OESA Automotive Supplier Barometer Index (SBI) measures the sentiments of North American automotive supplier executives. The fourth quarter SBI focused on HR and talent and found: 

  • Concerns about the labor shortage remains a great concern
  • Gaps between skills and responsibilities remained the same as the gaps in the prior year; firms are focusing on strengthening internal skill development and changing hiring practices
  • The gap between current and expected company culture narrowed as firms pursued a culture of flexibility
  • Suppliers are increasing wages, offering signing and retention bonuses, and offering mentoring initiatives to reduce employee turnover
  • Suppliers are budgeting for a 4.3 percent hourly wage increase
  • Suppliers are creating a sense of belonging by adding mentoring, skills assessments, and career rotations that empower employees

Creating a great employee experience now is just the beginning of a strategic plan for meeting employee needs now and in the future. IRI Consultants offers labor relations consulting in the automotive industry that can help your company make a union unnecessary, even as the industry disruptions continue as expected.

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About the Author Jennifer Orechwa

With over 25 years in the industry, and now as IRI's Director of Business Development, Jennifer has gained a unique perspective on what it takes to build a culture of engagement. By blending a deep understanding of labor and employee relations with powerful digital marketing knowledge, Jennifer has helped thousands of companies achieve behavioral change at a cultural level.

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