The United Auto Workers and AB Volvo-owned Mack Truck are set to resume contract negotiations on Monday as at least 3,500 hourly employees across three states continue to strike.
Workers from six factories, including Mack's main Macungie, Pennsylvania, plant and its engine and transmission facility in Hagerstown, Maryland, began their strike on October 12, following the expiration of the union's contract on October 1. After a couple of short-term contract extensions, the sides failed to reach a deal, resulting in the first UAW-Mack strike in 35 years.
"We are disappointed that the company failed to provide any substantial offer prior to the October 1st expiration date or during the subsequent meetings held during the period in which we extended the contract," UAW Secretary-Treasurer and Heavy Duty Truck Department director Ray Curry wrote in a letter to Volvo Trucks' North American labor director D. William Waters at the onset of the strike.
The union has identified a slate of issues that remain unresolved, including wage increases, shift premium, holiday schedules, health and safety concerns, retirement, subcontracting and temporary workers, and health care coverage.
The company views the breakdown in talks differently. Mack President Martin Weissburg said in a statement, "We are surprised and disappointed that the UAW decided to strike," rather than continuing production while talks continued. Volvo spokesman John Miess told CNBC that the company "presented a substantial offer" before the strike began, "which included significant increases in both pay and total benefits for our employees."
Volvo's Mies said Thursday that, due to the strike's effects on Mack's Hagerstown plant, production at its 1.6-million-square-foot truck facility in Virginia's New River Valley will halt beginning on Monday, resulting in the temporary layoff of roughly 3,000 employees. The Hagerstown facility produces engines, transmissions, and axles for the New River Valley factory, which is Volvo's largest truck manufacturing facility in the world.
Like Macungie and Hagerstown, New River Valley is a source of pride for Sweden-based Volvo. The company has repeatedly emphasized its manufacturing footprint in the United States – all of its trucks for the North American market are built here – including in the firm's original statement about the strike, with Weissburg saying the company has "no plans to close any U.S. manufacturing."
Nonetheless, UAW strikers want further assurances from the company. In a statement released Friday, Curry reiterated the union's position that members and other Mack employees "deserve job security for the future." He argued workers "are simply asking for dignity, fair pay and job protections."
End of the cycle
UAW's Mack strike comes as truck manufacturers enter a downward phase of their production cycle. Slowing economic and manufacturing activity have contributed to a weakened freight outlook, made worse by uncertainty related to the U.S.-China trade war. Those conditions have exacerbated a decline in new vehicle orders for an industry already prone to sizeable cyclical swings. From January through September, data from industry research firm ACT shows a 21% decline in net orders for Class 8 trucks, the heavy duty tractor-trailer semis that transport freight on U.S. highways.
2019 production hit its peak during the summer months, driving new vehicle inventories to all-time records, according to ACT President and Senior Analyst Kenny Vieth. By September's end, the industry had an inventory of roughly 82,500 units, according to ACT's data. "If we look at the ending inventory target for the industry towards the end of 2020, an ideal inventory would be to get down to 45,000-50,000 units," Vieth said. "One of the problems as we move through 2020 is, how do you clear that inventory?"
As inventory piled up this year, manufacturers started scaling back production and labor. "The industry was already starting to take their foot off the gas when the union decided to strike," said Vieth. "Second- and third-tier suppliers were already starting to ratchet back production basically coming in after Labor Day. So over and above the strike, we're already starting to see the impact of weak demand, strong build, and record inventories."
Don Ake of trucking research firm FTR echoed that sentiment, noting that the strike "will have a muted effect, because in 2019 truck production overall was very strong. However, once we're getting to the fourth quarter, it's starting to drop off significantly and we expect that to continue into 2020."
Volvo CEO Martin Lundstedt said as much when the company reported third quarter results on Friday, which included an 81% decline year-over-year in North American net truck orders. Lundstedt blamed a decline in demand following elevated order levels in 2018 and said the company had reduced production volumes and would implement further adjustments in the coming quarters. "For 2020, we expect markets to come down to more normal replacement levels in both Europe and North America, which we have prepared ourselves for."
Of course, Volvo is just one part of the larger picture. Across the industry, ACT's forecast for North American class 8 production this year is 345,000 trucks, while its projection for next year is 238,000.
Timing of the talks
The UAW contract's expiration coinciding with an industry shift from production to clearing inventory could pose a challenge to the union's negotiations.
Given current conditions, both Ake and Vieth agree that if the strike happened four to six months ago, the picture would be different. Facilities were producing at a high rate, with June and July build rates at their strongest in more than twelve years, according to ACT. Had production at key facilities come to a halt, there would have been little slack elsewhere in the truck supply chain to make up for it. "The workers would have had maximum leverage," Ake said, "that would have been a killer."
That said, Mack is not without incentive to reach a deal, especially if it wants to remain committed to U.S. manufacturing. In response to a question about the strike on the company's earnings call Friday, Volvo's Lundstedt called for a reasonable agreement, especially as the company competes against rivals that are manufacturing in lower-cost countries. "We have 100% of our production for North America in the U.S. We are proud of that," Lundstedt told investors. "But we also know that our competitors have the majority of their production in Mexico."
Declining to estimate how long the strike might last, he said, "it is important that we understand that a reasonable agreement is a must for us here… we hope that we can reach an agreement as soon as possible."