Automotive Engineering - March 2025 - 6

SUPPLIER EYE
Cooler heads should prevail
F
or my nearly 60-year lifetime, I have had
the benefit of being part of a North
American Automotive Industry that was,
from a production perspective, completely
rationalized and optimized. Given the
unprecedented political events of the last couple
of months, maybe we should all consider ourselves
fortunate.
Strong competition and a free market allowed
for components, systems and vehicles to be produced
in the optimal location with an optimized
supply chain, all structured to serve markets in
the U.S., Canada and Mexico with some exports
mixed in. Consumers, dealers, suppliers and vehicle
manufacturers all benefit from this optimized
structure.
Why the economics lesson? Please allow me
to vent. The recent events (and possibly continued
strife as of this publishing) of potential tariffs
levied against both Canada and Mexico outline
just how little some understand the basic
constructs of automotive fixed operations.
Despite our industry's constant goal of seeking
greater production flexibility and shortening
development timelines, vehicle sourcing and
supply chain decisions can take years to form
due to complexity, aligning resources and the
allocation of capital. For instance, how is a supplier
of forgings is supposed react overnight to
sourcing shifts? A long-term view to structural
shifts within automotive is critical.
Let's step back. In retrospect, we should all
consider ourselves lucky that a group of economic
and political visionaries in the last century
had the courage to marry various economies for
the betterment of all. From an automotive perspective,
the presence of the U.S.-Canada
Autopact of 1965, the US-Canada Free Trade
Agreement of 1988, the 1994 version which added
Mexico (called NAFTA) and the 2018 revision
called USMCA all enabled vehicles to be manufactured
efficiently.
Michael Robinet
Executive Director,
Consulting,
S&P Global Mobility
SAE Foundation
Trustee
michael.robinet
@spglobal.com
In retrospect,
we should
all consider
ourselves lucky
that a group
of economic
and political
visionaries in
the last century
had the courage
to marry various
economies for
the betterment
of all.
When there are mandates to immediately shift
long-held sourcing or face punitive tariffs, it underscores
the need for all involved to take a
long-term view under stable trade rules. There
are several byproducts to a shifting trade and
regulatory structure in which OEMs and suppliers
alike are making long-term bets.
Shifting Trade Structures
OEMs (and in-turn suppliers) invest in new facilities
or existing ones with more than a single cycle
in mind. Cycles are defined as roughly five
years. When a new plant is built, the expectation
- for most facilities - is that they will be active
for more than 30 years. Some plants in NA and
Europe have been active for over a century. The
system can't uproot sourcing overnight to align
with unanticipated, overnight tariffs without a
long-term trade structure. We are not a 40%
margin industry. Capital needs stability.
Fluctuating Regulatory Legislation
Though there have been orders and initiatives to
change the slope of light vehicle emissions legislation
in the U.S. and Canada, OEMs need greater
stability and a view of how to comply.
Without this, OEMs will delay new platforms,
extend current programs and rescope some investment.
After the 24-month window, most
OEMs in NA are war-rooming potential investment
scenarios. In the past, having this much
instability in the planning dynamic over the midterm
was unheard of. Another recipe for underutilized
capital is a certainty if they guess wrong.
In the end, automotive and other capital-focused
industries require a long-term planning
dynamic with gradual phase-ins if a new production
ecosystem is desired. The last 60 years
of unfettered market access and production
efficiency underscore why North America needs
to align to the long game in our competitive
global market.
6 March 2025
AUTOMOTIVE ENGINEERING
Automotive Engineering - March 2025

Table of Contents for the Digital Edition of Automotive Engineering - March 2025
