Trickle-Down Effect of American Axle Strike Spreads to Other Tier Suppliers as Additional Layoffs Are Announced

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Researched by Industrial Info Resources (Sugar Land, Texas)--As the 10th week of the American Axle & Manufacturing Incorporated (NYSE:AXL) (Detroit, Michigan) strike comes to a close, the effects of the walkout are obvious. General Motors Corporation (NYSE:GM) (Detroit) has either halted or slowed production at 30 of its manufacturing or assembly facilities in North America. However, this strike, combined with continually rising gas prices, a weakened United States economy, and the effects of the housing market crash have begun to alter the entire automotive industry landscape in North America. The trickle-down effect of the issues has come to the forefront as layoffs at other tier suppliers are becoming more commonplace.

In March 2008 Lear Corporation (NYSE:LEA) (Southfield, Michigan) announced it would lay off 1,000 employees at seven facilities, shutting down two of those plants completely and slowing production at an additional five. On April 5, Lear also announced layoffs at its Janesville, Wisconsin, facility. In Janesville, as many as 350 of the 750 workers at the plant may be out of work by the end of the summer as a result of the American Axle strike; this is on top of the 1,000 workers Lear had already taken off the job.

Supplier giants, such as Lear, are not the only ones to be affected. Smaller companies do not have the reserves of Lear and the resulting production slowdowns and layoffs are much more devastating. International Automotive Components (Dearborn, Michigan) will cut 47 jobs at its Carlisle, Pennsylvania, facility, a plant that as recently as February 2007 employed 625, reducing its employment total to 277.

Tenneco Incorporated (NYSE:TEN) (Lake Forest, Illinois), the largest maker of automobile exhaust systems, was forced to lay off 430 employees at its Owen Sound, Ontario, plant and an additional 200 employees at its Cambridge, Ontario, facility because of the strike. In addition, Delphi Corporation (Troy, Michigan) has laid off 190 workers at its Lockport, New York, facility and an undisclosed number at its Saginaw, Michigan, plant.

Not all suppliers have been forced to cut jobs; however, Gentex Corporation (NASDAQ:GNTX) (Zeeland, Michigan), a major automotive mirror supplier in Zeeland, has indicated that while they have been affected by the strike, they have managed to avoid any plant closings or layoffs. ArvinMeritor Incorporated (NYSE:ARM) (Troy), a major player in the automotive brake and shock market, has also not been significantly affected by the strike. Much like Gentex, they do not expect to have to close any facilities or layoff any employees, at least not at this time.

The real question is, with the market being as depressed as the first quarter showed, and with the second quarter showing promise to be even worse as the public cuts their respective budgets to take a faltering economy and rising gas prices into account over the summer, how long can these suppliers last? It is only a matter of time before more and more tier suppliers, from the giants on down to the mom-and-pop operations, begins to feel the crunch and are forced to either lay off employees, sell their facilities to other, more profitable suppliers, or close their operations for good.

While none of these options are positive for the industry as a whole, it is really only a matter of time as the supplier network goes through its own reorganization, albeit a forced one rather then a voluntary one. The industry has been a powder keg for the last few years as the Detroit Three have watched foreign automakers move in an take over. GM, Ford Motor Company (NYSE:F) (Dearborn) and Chrysler LLC (Auburn Hills, Michigan) have all already begun massive restructuring and reorganization programs. Now, because of a simple strike of some 3,500 workers at a single tier supplier, the balance of the tier infrastructure may well be forced to do the same in mass and really unwillingly.

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