Full Article: Beyond Tariffs
Beyond Tariffs: Detroit Automotive Industry Panel Explores Multiple Challenges Facing Businesses in the Global Supply Chain
On April 30, 2025, five experts from various roles throughout the Automotive industry gathered in Detroit, Michigan, to share their insights into immediate and longer-term challenges facing businesses operating within the global supply chain, as well as the industry as a whole.
The panel drew upon the knowledge and expertise of Dr. Donald R. James, CEO of Solero Technologies; Dan Laible, CFO and Executive Vice President of NYX, Inc.; Vanessa Miller, Automotive Team Chair at Foley & Lardner, LLP; Linda Watson, Chair of the Automotive and Manufacturing Industry Group at Clark Hill; and Sheryl Toby, Bankruptcy, Restructuring and Manufacturing Supply Chain Partner at Dykema Gossett PLLC.
The panel was moderated by Sheldon Stone, a Managing Director in Capstone’s Financial Advisory Services (FAS) group, who has more than 35 years of experience providing financial and strategic solutions to automotive companies in the U.S., Europe, and Asia.
The story of the U.S. Automotive industry is one of competition, distress, resilience, and innovation. From the Great Recession of 2008, through the COVID-19 pandemic, to the pandemic hangover that brought the industry chip shortages and talent shortages—businesses in the supply chain have learned how to survive on razor-thin margins. But how will they weather these new threats: dramatic shifts in electrification policy, tariffs, and competition from China?
Photo source: Capstone Partners, Detroit Automotive Industry Panel, April 30, 2025.
Top Takeaways from Capstone’s Automotive Industry Panel
- Many auto suppliers were experiencing challenges even before the threat of tariffs began to exert additional stress on their operations
Auto suppliers generally had healthy balance sheets before COVID. Today, balance sheets in terms of liquidity, capacity utilization, and leverage ratios are much weaker than in 2019 which makes it harder to adapt to the tariff shock. This along with policy shifts around electric vehicle platforms is creating an overall atmosphere of uncertainty. In response to inflationary conditions and increased demand, OEMs (original equipment manufacturers) have had some ability to raise prices with consumers but due to contracts, suppliers have generally been forced to absorb rising production costs often without an ability to make matching increases in prices charged to OEMs or other customers within the supply chain.
There is considerable variance industry-wide in how OEMs approach the pricing challenges their suppliers are facing with some being more willing to work with suppliers than others.
- The unpredictability of the tariff situation stands to create greater disruption than the Great Recession or the COVID-19 pandemic
From the suppliers’ perspective, the current conditions with the tariffs are harder to predict and plan for. While the recession of 2008 and the COVID-19 pandemic posed challenges, suppliers were able to work with the OEMs to plan around the impediments to production, unlike the current situation. As one member of the panel indicated, “I have 1,000 suppliers. If any one of those suppliers cannot succeed due to a cost structure increase of this significance [tariffs], then the entire supply chain shuts down. The pure shock of this is different because we can’t plan.”
Another significant difference between what is happening now and the situation with COVID, is that the pandemic was a global event. The brunt of the impact of tariffs will be felt by U.S.-based manufacturing which is likely to have an adverse impact on their competitiveness compared with global counterparts, at least in the near term.
- Beyond tariffs, domestic policy shifts from electric vehicle (EV) to internal combustion engine (ICE) emphasis have taken a toll on suppliers
The impact of politics on policy has created a whipsaw effect in the industry—many plants constructed to produce components for EV powertrains will never be utilized. The cost of construction was contractually undertaken by the parts manufacturer with an expectation that they would recoup their investment over time as they began to supply those parts to the OEMs.
While it is unlikely any manufacturers will take on this type of risk in the future, the fact remains that they did enter into these obligations and now have to find a way to manage the impact to their profitability.
- The Chinese Automotive industry is advancing rapidly, backed by strong governmental support. Competition from this source may represent an existential challenge to U.S. automakers
As one of the panelists indicated, one thing many people do not realize about Chinese automakers is that they are required by their government to share intellectual property and collaborate with each other. This is one of the reasons their industry as a whole advances so quickly and how manufacturers are protected from the risk that impacted so many suppliers in the shift to and then away from EV platforms.
Innovations around rapid charging batteries or batteries give Chinese-made EVs an advantage globally particularly when viewed along with the relative affordability of these vehicles.
While members of the panel spoke out about the advantages of a free market, and also the long-term opportunities inherent in incentivizing U.S. manufacturing, the near-term is definitely daunting.
To learn more about Capstone’s Financial Advisory Services group and our experience helping businesses throughout the global automotive supply chain meet the unique challenges of their industry, contact Sheldon Stone.
For more information about our April 30 event, including speakers’ bios and additional articles for Automotive industry businesses, visit the Detroit Automotive Industry Panel home page.