ACME — In his role as president of Shape Corp., Mark White often deals with disruptions in navigating the Grand Haven-based Tier 1 automotive supplier through uncertain business conditions.
Lately, however, his concerns have ratcheted up, leading him to wonder when the current state of industry upheaval will pass.
Just this year, the supplier of automotive structural components has submitted 26 steel tariff exclusion requests for a specialty grade of metal the company uses in its bumper systems. Because Shape sources this particular steel from Europe, the company will have to pay an additional 25-percent tax on the imported materials, which can only be produced at one of seven mills around the world, according to White.
“There are thousands and thousands of exclusion requests, and the amount of resources that are being applied to this and the timing to get them reviewed and to get a position on them is too long,” White told MiBiz earlier this month during the Center for Automotive Research Management Briefing Seminars at the Grand Traverse Resort. “Then if you get the exclusion request — let’s say it takes six months for them to review your exclusion request — there’s no rule about going retroactive back to when the tariff was implemented.”
According to White, the current system proves problematic for many automotive suppliers. Until the status quo changes, Shape Corp. will continue to pay a 25-percent tariff on steel imposed by President Trump in March.
“Our manufacturing strategy has been to produce in the regions in which we sell, so we don’t do a lot of movement between regions of our products,” White said.
The company investigated the two domestic sources for the high-strength steel, but “they’re not as competitive, even with tariffs in effect, so those are not really good options for us right now,” he said.
Increased concerns are fueling auto executives’ pessimism in a recent index issued by the Original Equipment Suppliers Association.
OESA’s Supplier Barometer Index for the third quarter plummeted 14 points from the beginning of the year to a reading of 43 on worries over the “administration’s current trade policy agenda.” (Any index below a neutral reading of 50 indicates execs’ pessimism.)
Supplier executives indicated trade policy “stands out as the greatest threat to the industry by a wide margin,” according to OESA.
“Concerns … remain over supply chain risks, commodity prices, the impact of section 232 and section 301 tariffs as well as the fate of the stalled (North American Free Trade Agreement) in the context of the midterm congressional elections,” Mike Jackson, executive director of strategy and research for OESA, wrote in the report. “Each concern adds uncertainty to the planning environment, causing automakers and suppliers to assess, revise and potentially postpone incremental investments until greater clarity can be determined.”
That level of uncertainty is causing headaches for White, who “needs time to adapt” the complex business to the proposed tariffs.
“Everybody that I’ve talked to — my peers — have had the same issue,” White said. “This is a highly integrated global supply chain in automotive. We supply a bumper system in the U.S. It’s the same bumper that we’re providing to the global platform in China and in Europe, and it’s the same material spec. We can’t just switch. But if we had time, we could react.”
WORKING WITH CUSTOMERS
To adjust to tariffs, automotive suppliers are turning to their customers for help.
“We’re having conversations with our customers, and we’re also trying to offer them solutions to lower our overall costs,” White said. “If you can help us implement, we can lower the overall cost. We’re talking about how do we partner with our customers to help offset some of these (costs).”
Changing materials may be a solution for some manufacturers dealing with the tariffs, but many OEMs will continue to avoid that option since it would trigger additional testing and reporting, White said.
“They would have to recrash, recertify the vehicle, which they’re never going to do,” he said. “That puts us in a bind.”
For Portage-based Mann + Hummel USA Inc., a supplier of liquid and air filtration systems, the first round of tariffs has translated into higher costs as well, said Jack Endres, the manufacturer’s vice president of operations. Similarly, Mann + Hummel also has started talks with suppliers and customers to mitigate some of those additional costs, he said.
“It’s not just hitting steels — it’s rubber, it’s hitting any purchased components,” Endres told MiBiz. “To me, I think (the government) truly need(s) to understand what the impact is to the profitability of the supply chain. … We’re talking about programs that are just now launching that have a four- or five-year life. So to take a negative impact for four or five years over the life of a new program that you thought was healthy, it’s not a pretty picture going forward.”
According to Endres, Mann + Hummel is “looking at all aspects” inside the industry for solutions, including filing for tariff exclusions. Currently, the company is getting hit hardest by freight charges, which is how many companies are passing along the added tariff costs, Endres said.
For White at Shape Corp., these tariffs on U.S. businesses will ultimately end up as a tax for consumers.
“The increase in cost as a result of the tariffs will eventually flow through the value chain, and the consumers will feel this,” he said. “When I bring it down to our company, the effect of the tariffs … is a multi-million-dollar-a-year impact. That’s going to affect us in some way.”