The modern automotive industry is a tightly-woven tapestry of cross-border networks, supply lines, and international markets. But that tapestry is now being pulled apart.
A new era of intense protectionism is here. It is rewiring supply chains the world over and forcing automotive OEMs to rethink their sourcing strategies in response to rising prices, delays, and uncertainty.
The United States has imposed 25% tariffs on imported vehicles and parts, as well as raw materials such as steel and aluminium. And 125% tariffs on all Chinese imports, including a special tariff on Chinese electric vehicles.
And the EU, UK, China and other nations are at various stages of retaliating with their own tariffs. For example, the EU has retaliated with 25% tariffs on US imports.
The consequences for automotive OEMs are unprecedented:
- One-third of North American vehicle production (roughly 20,000 vehicles) is expected to be disrupted
- Vehicle prices are expected to rise by by $4,000-$10,000 per unit
- Parts prices are set to increase by 25-100%
- US vehicle sales are forecast to drop by 4.3% in 2025
This disruption is already causing chaos across logistics networks, as parts and vehicles are rerouted to minimize tariff exposure. Some OEMs are even being forced to pause production while they await delayed parts.
Compounding the issue is the sheer complexity of compliance with new and ever-changing trade rules and classification systems, which drain time, money, and focus away from other priorities.
The specifics of the tariffs are changing day-by-day and vary from country to country. No one can say where things will be one year from now, let alone five or ten.
For auto makers with an eye on the future, the important issue is not the tariffs themselves, but the wider movement towards volatility and uncertainty they represent.
They are indicative of a structural shift in how supply chains operate. This new world is defined no longer by stability and predictability but by continuous disruption and volatility.
The limits of traditional supply chains
OEM supply chains have long been optimized for stability, speed, and cost-efficiency.
These highly interdependent systems are carefully calibrated to lower costs and maximize throughput, based on the assumption of a predictable geopolitical and economic landscape.
An assumption that no longer holds.
The qualities that once made traditional supply chains so effective—tightly-coupled systems, ‘just-in-time’ principles, razor-thin operational margins-for-error—are now proving to be liabilities in a world that values resilience.
The scale of this change is too deep and its impact too complex to be met with short-term fixes and marginal tweaks. OEMs need to find fundamentally new ways of operating that give them orders of magnitude more resilience and agility.
Not to weather this one crisis, but to radically adapt their sourcing strategies to this new world of risk and fragility.
How to build resilient supply chains
The businesses that will thrive in this new world are those that can build flexibility into the core of their operations. Redesigning their supply chains not just to survive this immediate threat, but to adapt to future ones, quickly, intelligently and at scale.
Here are three core ways that automotive OEMs can respond to adapt to this disruption, quickly and at scale.
1. Optimize supply chains for flexibility
OEMs need to prioritize flexibility over efficiency when it comes to sourcing, fulfillment and distribution.
Single-supplier strategies are effective in a stable context, but in today’s climate they’re a liability. When new tariffs hit or specific borders or markets become untenable, you need to have alternatives handy and be ready to act.
Start by mapping and scoring risk exposure of existing suppliers and parts, highlighting parts and products that are vulnerable to tariffs, border delays or regulatory change.
Then, build out regional supplier networks, especially for those high-risk parts.
Finally, use analytics to model alternative routing strategies. What happens if you reshore production to the US? Or shift from China to Vietnam or Mexico? What’s the cost-risk trade-off of ‘just-in-case’ versus ‘just-in-time’ inventory strategies in key hotspots?
2. Invest in predictive modeling
When disruption can hit at any moment, it pays to keep your finger as close to the pulse of change as possible.
Predictive modelling allows businesses to simulate a range of scenarios so they can assess potential outcomes and act decisively, before disruption takes hold. It can help to anticipate the impact on supply chains of sudden policy shifts and find optimal new routes for goods, for example.
Rather than being reactive, auto makers can make informed choices based on what is likely to happen. Want to know how a new tariff might impact your sourcing costs? Which suppliers are most vulnerable to policy changes? Whether rerouting through a different region will avoid delays without spiking emissions or costs?
With a more complete view of potential movements on the playing field, auto makers are better placed to make accurate decisions, quickly.
3. Enable end-to-end visibility across your supply chain
A major barrier to supply chain resilience is fragmentation of: systems, data, teams, and insights.
Your ability to make decisions and take corrective actions depends entirely on how quickly and clearly you can see and interpret what’s happening across your supply chain.
If information is fragmented (siloed, outdated, inaccessible), you’re taking shots in the dark.
When supply chain disruption hits, you need to be able to quickly assess, not only where parts are, but also what the business implications are: how will delays affect revenues? How will they impact customers? What options do you have to compensate?
The more insight you have, from one end of the supply chain to the other, the more potent your response will be.
Conclusion: From fragility to flexibility
The rules of the game have changed. And supply chains must change with them.
Automotive OEMs can no longer afford brittle, inflexible systems based on old assumptions. They need supply networks that are built for flexibility and that put real-time data at the heart of everything they do.
A more adaptable and resilient supply chain is able to flex in the face of political and economic disruption, while delivering high-performance customer experiences.
And OEMs that can embrace flexibility, leverage predictive tools, and connect their data across the value chain have an opportunity to leap ahead of competitors, positioning themselves as more reliable, resilient and attractive brands in an uncertain future. Get our latest ebook, Navigating disruption in the automotive industry: 5 Strategic responses to unprecedented uncertainty and change.