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Global auto parts suppliers have joined the brutal pricing battle with automakers as they try to survive the outrageous tariffs that can wipe out thousands of small players from the $10 industry.
The conflict will occur to discourage the automaker from holding a Crunch talk with Donald Trump to deter him from moving forward with a 25% tariff on most of the auto parts imported since May 3.
The US president signaled “help” to the industry on Monday, but details on how tariffs on parts will be implemented remain unclear.
Jean-Lewis Peck, head of French trade agency Fiev, which represents car parts suppliers, said its members are “protecting themselves for tough negotiations with car manufacturers under pressure,” adding that “it’s going to be a terrible fight.”
Earlier this month, French auto parts supplier Valeo said it had managed to hand over additional costs to half its customers from tariffs, but one global automotive company said it was standing firm against price increases demands from 150 suppliers who called for a contractual suspension known as “Force Majeure.”
“We’re not against each other, but we’re both in a tough place,” said a senior automotive executive.
Executives have warned that automakers will likely resist attempts by many parts suppliers who are already operating at thin margins of less than 5%, and to pass tariff costs amid concerns about the recession and slowing demand for vehicles.
Most parts supply contracts do not automatically allow auto parts contractors to pass costs to clients. More than half of those surveyed by the EU trade organisation CLEPA and McKinsey said they must renegotiate contracts to accommodate tariffs.
In Europe, industries were already under severe financial pressure long before the trade war broke out due to slower demand for vehicles. Unemployment has more than doubled last year, but several German suppliers have gone bankrupt, including seat producer Recaro and Luxury Car Part Maker Walter Klein.
To support the industry, Peck has called on Brussels to introduce local content rules for auto parts, subsidies for purchasing EVs, and investment programs similar to Joe Biden’s IRA.
“If nothing is done in the next five years, we risk losing half of the existing (French) industry,” added France with 56,000 jobs linked to auto parts.
The impact of the tariff shock on this sector could be worse than during the pandemic, I warn. The relationship between suppliers and their clients was tense as automakers refused to completely absorb the rising costs of protection for components, particularly those that are extremely short on semiconductors.
Most suppliers struggled to narrow down profit margins, but automakers, particularly premium brands such as Mercedes-Benz and BMW, increased prices and increased margins during the period.
“We can’t absorb the costs again,” said one German supplier executive.
“If things stay like they are now, then (bankruptcy) will be part of the photo. Suppliers can either absorb the costs or lose market share,” said Benjamin Krieger, executive director of Clepa.
French auto parts manufacturer Opmobility has been hit with recent decisions by Stellantis and other automakers to import production into the US at sites such as Mexico and Canada.
“When a client like Stellantis stops, we have no choice but to stop,” said CEO Laurent Favre.
Compared to Europe, automotive experts say the integration between Japanese components contractors has been suppressed by the Kiretz network of companies established in Cross-Share Holding with the Centers such as Toyota and Honda.
Toyota has notified its suppliers that they will bear the extra cost of customs duties, according to two people familiar with the issue, but some parts suppliers have questioned how long the group can provide support.
Japanese auto parts suppliers are under pressure from bankruptcy in 2024, reaching 11-year highs by 36 companies, according to data from Tokyo Shoko Research.
Hideki, president of Mobility Solutions at Starlight, a grill supplier of Osaka-based grill supplier Nissan and Mitsubishi Motors, highlighted the fear of shaking the ranks of the suppliers.
He predicted a potential “double punch” from strong yen for Japanese exports with sales from tariffs alone, with a 10% drop in sales from tariffs on completed cars alone.
“I want to say we can turn this risk into opportunities, but there’s no opportunity here, there’s just a risk,” he said. “We can’t survive without attacking a new, balanced partnership between cars and parts makers.”
