The auto industry is in turmoil. According to a recent report, one-fifth of parts suppliers to the automotive industry have descended into financial stress, and pessimism is taking over the whole business. The crux of the matter is that supply chains still haven’t fully recovered after the COVID pandemic, with supply constraints, then inflation, and rising interest rates straining the system. Now President Trump’s tariffs are wreaking havoc on suppliers, and suppliers are predicting jobs cuts and plant closures.
Delaying Investments And Firing People
According to a survey by financial analytics company RapidRatings, and reported initially by Automotive News, about a quarter of suppliers had delayed investments or made changes to their “employee head count.” Another third say that they anticipate making changes. It has already started hitting Detroit with logistics, stamping, and brake pad supply companies cutting jobs or closing plants. At the same time, other organizations say they’re cutting back on investment plans, and many suppliers are finding themselves in significant amounts of debt.
Price Shock Is Coming To Consumers
We’ve covered automakers dealing with the ongoing tariff situation, but it gets more complex. Each car is made up of thousands of parts, and a large proportion of them come from parts suppliers, who also have suppliers, and make up parts chains that feed the automakers. According to the report, many major parts suppliers are planning on passing tariff costs to their automaker customers.
“We stated that tariffs at this level would hit suppliers, dealers and consumers this year. The price shock will become impossible to ignore,” said Patrick Anderson, CEO of the Anderson Economic Group, in a statement. And it does seem inevitable that the costs will be passed up the next chain, going from automaker to consumer. An analysis from the Anderson Economic Group says that importers paid $276.1 million in duties on vehicle parts from Canada and Mexico in July alone. That’s seven times as much as they paid in January.
An Unsustainable Tax
When that cost makes its way to the consumer, that sticker shock is inevitable. Even 20 percent added to a $25,000 car turns it into a $30,000 car, and import taxes range all the way up to 50 percent on steel and aluminum imports. Currently, there are 25 percent duties on imported vehicles and auto parts. Parts suppliers and automakers are only going to be able to eat that for so long, and there are reasons why so many materials and parts are imported.
“Companies have been working to mitigate things and make sure they continue to be profitable. People are doing that right now, but you can only do that for so long.”
– Collin Shaw, president of MEMA Original Equipment Suppliers.
The report points out that when companies are in debt and having profits eaten, they’re unable to invest and expand. Or, improve products and grow. Not only are the impacts short-term on jobs and increased consumer prices, but it also slows down competition and growth from the US in the global market. Automakers are watching suppliers’ finances and urging them to do the same with their suppliers. Raising prices is the last thing they want to do, as that will slow consumer demand and start a downward spiral.
Source: Automotive News
link