The strike by the United Auto Workers against the Detroit 3 automakers presents an unparalleled challenge for the over 5,600 automotive suppliers nationwide. Many of these companies are still reestablishing their footing after the upheaval caused by COVID-19 production slowdowns. Ann Marie Uetz, a partner at Foley & Lardner, stated, “The automotive supply chain is incredibly resilient, but a strike lasting more than several weeks will likely cause some suppliers to seek bankruptcy protection.”
Legal advisors for these suppliers have been urging them for months to bolster liquidity and review contracts with both customers and subsuppliers, in anticipation of a possible strike that everyone had hoped to avoid. It seems that the details contained within these contracts will play a significant role in determining the potential impact of the strike on suppliers, regardless of whether it occurs or not.
The specific advice given to suppliers centers on ensuring adequate liquidity and carrying out a thorough contract review. It is the underlying fine-printed text in contracts with both customers and subsuppliers that will particularly influence how these companies will experience and potentially manage the ramifications of any company-wide strike.
Despite this careful preparation, if the strike extends over several weeks, some suppliers may well find themselves resorting to bankruptcy protection. The industry’s strength and resilience will indeed be pushed to its limits if such events transpire. For suppliers, scrutiny of contractual text could offer a vital lifeline in this period of impending uncertainty.
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