Trump grants one-month tariff exemption for major automakers
President Donald Trump granted a one-month tariff exemption to any autos coming from Mexico and Canada for Ford, General Motors, and Stellantis.
- Nearly half of supplier members in MEMA would cut U.S. jobs if tariffs stretched to 6 months
- Over 30,000 parts go into the average internal combustion engine vehicle
- If even one supplier shutters, the Detroit 3 may be forced to halt production on some of their most popular vehicles
At a product demonstration at Michigan Central Station this week, European parts supplier Forvia previewed advancements in vehicle technology and eco-friendly materials to industry professionals ahead of the Shanghai Auto Show.
With reporters in the room, attention became divided while the auto supplier, one of the largest in the world, confronted the chaos coming out of Washington.
Harried phone calls and text messages echoed through the halls of the train station among some of those in attendance. Most of those calls were to the Motor & Equipment Manufacturers Association, the trade group that represents 1,000 suppliers that provide 4.8 million U.S. jobs. MEMA had no clarity to provide.
Forvia, which specializes in interior systems, lighting and electronics, is among hundreds of auto suppliers worried that tariffs could slash profits and halt production in key sales regions. The uncertainty of which companies will be affected and how remains unclear as automaking authorities plead the industry’s case to the White House.
Forvia previously told the Financial Times that it would take an “enormous” hit on tariffs. With a large manufacturing presence in Mexico, Forvia estimated the higher end tariff costs would equate to more than two-thirds of the company’s cash flow for all of last year.
Forvia, like many suppliers that use mandated parts, or the components or materials that manufacturers require suppliers to use when making parts for them, believes there may be a case that automakers should pay those tariffs.
“The tariffs for us are concentrated or limited to what is happening in the Mexico-U.S. border,” said Olivier Durand, Forvia’s chief financial officer, on an earnings call last week. “What it would mean for the carmakers, it’s a different story. And this is something we don’t know today, as we don’t know what the situation finally will be.”
But as the automotive industry rests in the crosshairs of President Donald Trump’s trade war with China, Mexico and Canada, it’s the smallest suppliers that stand to lose it all. Many of those are based in Michigan.
Mom and pop take a hit
Companies across Michigan provide countless parts, components and materials that go into the vehicles produced by the Detroit Three. Of MEMA’s 1,000 members, 400 are based in Michigan. If they go down, the automakers don’t have a chance to finish some of their most popular vehicles.
Data from the Upjohn Institute, a nonprofit, nonpartisan research center in Michigan, calculates 117,675 auto supplier jobs in Michigan, based on data from Moody’s Economy that relies on the North American Industry Classification System.
The damage could resemble some of what the industry endured earlier this decade as the coronavirus pandemic’s impact on the supply chain. General Motors, Ford Motor Co. and Stellantis each had to pause production, idle plants or build vehicles and let them sit as they awaited key parts.
Vehicle suppliers operate in all 50 states and are essential to the U.S. economy, representing the largest sector of manufacturing jobs in the U.S., according to MEMA.
Tariffs undoubtedly put those jobs at risk, according to Linda Watson, attorney at Clark Hill and chair of the firm’s automotive and manufacturing group. She told the Detroit Free Press that the impact, particularly for low-tier suppliers with thin margins and many employees, could be devastating.
Many Michigan suppliers that she has spoken with already face a tipping point, she said. Over 30,000 parts go into the average internal combustion engine vehicle, according to Watson. Even a single supplier shuttering could halt a vehicle’s production indefinitely.
“Without that one part, you can’t make that minivan, SUV or truck,” she said. “And the financial cost to a manufacturer is substantial — and measured by the hour.”
What’s at stake
Without more information about how tariffs will apply to either the component or materials that suppliers use, the cost will be incalculable, said Glenn Stevens Jr., executive director of MichAuto, an association that works to promote and expand the industry.
“Sometimes a part will move multiple times across the border before it’s connected to a vehicle,” he said. “It takes one critical component of the thousands that come together to shut down an assembly line.”
Reactionary policies won’t bring more jobs to Michigan or save the ones already in the state, Stevens added. He is also vice president of automotive and mobility initiatives for the Detroit Regional Chamber.
Suppliers freaking out
North America’s free trade agreements — renegotiated during Trump’s first term and renamed the U.S-Mexico-Canada Trade Agreement — allows tariff-free borders that suppliers cross frequently, said Dan Hearsch, a managing director in AlixPartners’ automotive and industrial practice. For suppliers that didn’t take action a month ago, when these tariffs were first threatened, pain is imminent.
“The number of communications going out to automakers from suppliers is undoubtedly in the thousands,” he said.
Commerce Secretary Howard Lutnick said Thursday that auto suppliers adhering to USMCA trade agreements could get a month’s respite from tariffs alongside their automaker counterparts — until Trump makes broader tariff decisions April 2.
Depending on their relationships, those communications from suppliers could either be pleadings for tariff relief or aggressive negotiation tactics to ensure automakers keep contract terms, Hearsch added.
“There are a lot of suppliers already at the edge of real financial distress,” he said. “They might ask automakers to pay ahead for parts orders; they can’t wait months for their partners to figure out how to deal with this.”
Companies like Forvia expect that manufacturers will pay tariffs on parts for which they have mandated specifications. Forvia said last month it drafted plans to deal with tariffs that required passing costs onto customers.
“The mandated part doesn’t concern us,” said Olivier Durand, Forvia’s chief financial officer. “It will be up to the carmakers to see with their providers how they deal with the subject.”
Cutting U.S. jobs
Most suppliers in Michigan are contracted to assemble or construct parts unique to a platform or vehicle, Watson said, where the contract is forged based on the cost of producing the part as well as the volume.
“Let’s say I have a facility in Mount Clemens, and I’ve dedicated a line that’s taken me two years to build out for this part. I have properly invested in tooling and equipment. That’s time investment, and the loss of other opportunities, that I’ll only recuperate in this program,” she said. “When these volumes go down or these investments end early, that’s where suppliers get left holding the short stick. They still have this space dedicated to the next six years.”
Suppliers’ margins tend to be thin, with little stockpile on hand, Watson added. Any fluctuation in the volume or the cost of the raw material, like the resin that goes into a plastic part, could become a lot for the supplier.
“Many of these suppliers aren’t Tier 1,” she said. “Mold makers that rely on the auto industry for their livelihood are mom and pop shops. These tariffs are impacting them significantly, and they won’t survive.”
In a survey MEMA conducted of its over 1,000 members, nearly one-fourth of respondents said their companies would cut or delay investments during the first month of the newly enacted tariffs. About 21% of suppliers said modifications to supply chains would be needed, reversing critically expensive investment, and 13% said cutting U.S. jobs would be required.
If tariffs stretch to six months, even more suppliers reported the need for drastic measures: 57% would slash business investments, 75% would change supply chains and 47% would cut U.S. jobs.
Onshoring not likely
How they won’t deal with it, despite Trump’s push, will be to move jobs back to the U.S. One-third of respondents to MEMA’s survey said shifting production outside the U.S. would be necessary.
Randi Berris, vice president of marketing and communications for Business Leaders For Michigan, said in a statement that short-term disruptions can translate to long-term job losses in auto and other key industries to the state.
“Michigan’s jobs, businesses and residents are highly vulnerable to tariffs and trade conflicts,” the statement read. “We strongly urge a swift resolution that addresses key concerns while preventing rising consumer costs and economic harm.”
The White House’s stated intent for tariffs on Canada and Mexico is to gain concessions on issues related to illegal immigration and fentanyl trafficking — and to coax manufacturing jobs back to the U.S.
“What they’ll have to do is build their car plants, frankly, and other things in the United States, in which case they have no tariffs,” Trump said March 3.
The idea that could happen on such short notice is so unlikely that the announcements baffled the industry, Hearsch said. Automakers and their vendor partners don’t formulate plans in four-year presidential cycles, nor do these companies add costs unnecessarily. Rather than increase American jobs performed by American citizens, tariffs are far more likely to push manufacturers further toward automation, he said.
Explicit border negotiations — without the months of warning and careful planning required to enact tariffs in a way that would actually improve the nation’s deficit and increase jobs — emerge simply as a threat, Hearsch said.
If reducing offshore auto manufacturing jobs is “really what they’re trying to do, this is a really inefficient way to do it,” he added.
Jackie Charniga covers General Motors for the Free Press. Reach her at [email protected].
This story has been updated with additional information.
