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GM strike leads to layoffs at the automaker's suppliers

Auto workers strike against GM

A nationwide strike by workers at General Motors isn't only affecting the automaker — the labor action is also disrupting the automaker's suppliers across the U.S.

Hundreds of workers have been temporarily laid off at Android Industries and Nexteer Automotive, both in Michigan, as the walkout by 46,000 union workers at GM heads into a second week. The two companies make instrument panels and steering systems for GM, respectively. 

More than 500 hourly employees at GM's jointly operated DMax engine facility in Moraine, Ohio, and about 700 workers at the car maker's St. Catharines, Ontario, powertrain plant, also have been furloughed because of idled production, a GM spokesperson confirmed.

Auto plants use "just-in-time" production methods, in which workers make parts for vehicles as they are being assembled in real time. Once that assembly grinds to a halt, the impact is quickly felt outside the GM factory. 

"After you get through the first week, the suppliers and then the suppliers' suppliers start shutting down," said Patrick Anderson, principal and CEO of Anderson Economic Group in East Lansing, Michigan. He cited electricians and truckers who haul GM vehicles from plants to dealerships as examples of other workers affected by the strike.

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"It's not just about GM workers — it's all the suppliers that work with GM to put stuff in the car, and other vendors that GM has," Tendayi Kapfidze, chief economist at Lending Tree, told CBS MoneyWatch. 

As Robert Jacobson, chairman of UAW Local 652 in Lansing, Michigan, told the New York Times: "My whole plant is shut off."

Jacobson's local represents 228 workers at Android Industries. Android factories that supply GM plants in Bowling Green, Kentucky; Flint, Michigan, and Arlington, Texas, were also impacted, according to the Times.

In Saginaw, Michigan, UAW Local 699 is offering advice to members on applying for unemployment benefits and links to resources for dislocated workers, including one offering free diapers, after warnings of layoffs at Nexteer.  

"Without an imminent resolution, Nexteer faces the difficult conclusion that we must temporarily reduce our workforce in the coming days because of the disruption in GM production," the company said in a statement posted by the UAW chapter, which represents roughly 3,000 workers at the company. 

Nexteer did not return a request for comment.

Anderson estimated GM's initial daily losses because of the strike at about $2 million. But the automaker's losses likely came to about $25 million overall for the first week of the strike, and he expects those losses to continue growing. (Some economists have predicted even worse pain, with Citigroup estimating GM could lose as much as $100 million in operating income for each day of the strike.)

Although the overall impact of even a large autoworkers' strike on the U.S. economy is initially fairly small, the regional effects can be severe. Strikers get just $250 a week from the union after 15 days on the picket lines, for instance. 

"The cost of a strike, to both workers and the company, grows steadily in the first week, and then pyramids out into the surrounding economy," Anderson said. "If we go past this week, parts of Michigan, Iowa and Indiana will go into a one-state recession. After a third week, "the national economy starts to shudder," he added.

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The GM strike "poses an outsized economic threat" to Michigan and cities including Detroit, analysts at Moody's Investors Service noted last week, days after GM workers took to picket lines. Michigan gets far more of its wage and salary income from the car industry than the rest of the country, with the auto sector accounting for 7% of the state's private-sector income, versus less than 2% nationally, Moody's noted. 

The strike could help push Michigan into recession, according to Kapfidze, whose online lending firm recently released an analysis that found Michigan to be the state at the highest risk of an economic downturn. 

"With the strike, the risk goes up," he told CBS MoneyWatch. "People not getting their full salary are not spending in their local economy the way they typically spend, and people beyond the auto industry are going to start to be really cautious."

GM's use of temporary workers, potential plant closures and the time it takes for shorter-term workers to reach top scale are among the issues being negotiated in the UAW's first walkout against the automaker since 2007. 

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