We were on a call on Monday with a SVP at a Tier 1 supplier—one of those guys who’s seen everything. He’s a studiously polite Midwesterner.

"We’ve modeled this six different ways," he told us, "and every scenario sucks. Either we eat the cost, push it to customers who don’t want to hear it, or bet on a Washington miracle. And my board is not in the business of betting on miracles."

This is the reality in the U.S. auto industry today. It’s about who gets hit hardest, and who finds a way to make someone else pay for it.

The New Reality

We’ve had months of back-and-forth threats, exemptions, delays, and last-minute policy shifts. As of March 4, 2025, the 25% tariff on Canadian and Mexican auto imports is real.

Except, as of March 5, there is a reprieve. But it’s only a month. For now.

Who knows what next day will bring.

It’s time to stop waiting and start making hard choices.

The Three-Front War Facing Auto Suppliers

Executives across the supply chain—electronics, drivetrain, steel, software, semiconductors—are in the middle of a three-front war:

  1. Cost Contagion – A 25% tariff on key components (or entire subsystems) means suppliers have to either:
    • Absorb it (hello, margin squeeze).
    • Pass it on (watch automakers and consumers scream and inflation skyrocket).
    • Redesign sourcing (good luck finding capacity and quality elsewhere fast enough).
  2. Demand Shock – With new vehicle prices set to spike, some OEMs will cut production to reduce the risk of unsellable inventory. Fewer vehicles built = fewer parts ordered.
  3. Washington Gamesmanship – Some suppliers will win exemptions. Others won’t. And who wins isn’t about merit. It’s about who has a membership card for Mar-a-Lago in their pocket.

For Tier 1 and Tier 2 players, this isn’t just about today’s tariffs—it’s about whether you’ll still be the preferred partner when the dust settles.

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Move Fast or Get Crushed

This isn’t a drill. The suppliers who move first will be the ones who get ahead.

Here’s what some companies are doing right now to avoid getting steamrolled:

1. Pressuring Automakers to Share the Pain

The old model—where Tier 1 and Tier 2 suppliers absorb every cost increase while automakers pretend inflation isn’t real—isn’t going to cut it this time.

The smartest negotiators are laying out hard cost scenarios and preemptively framing expectations. They’re citing the tariffs as an act of government intervention that requires an industry-wide response.

Conversation happening behind closed doors right now:

Supplier Exec: “We’ve run the numbers. We can hold the line at 8% increases if we adjust sourcing. But if this goes to 25% tariffs across the board? We all need to be realistic.”
OEM Procurement Lead: “You’re saying you can’t eat this cost?”
Supplier Exec: Laughs “You’re saying you can afford a $5K sticker price jump on an entry-level model? C’mon.”

Your leverage? There are only so many high-quality, high-reliability suppliers. If you’re one of them, now’s the time to remind automakers of that fact.

2. Rethinking the North American Footprint

Manufacturing in Mexico made sense when NAFTA and USMCA promised stability. But with predictability gone, the case for diversifying production is a lot stronger.

Winners

  • Companies with existing U.S. production who can now pitch themselves as “100% tariff-proof” to OEMs.
  • Suppliers in Southeast Asia, Japan, South Korea, and Latin America (other than Mexico, of course)
  • Companies already investing in automated U.S. facilities that reduce reliance on high-cost labor.

But here’s a contrarian take: are you betting medium term that Trump and Mexico will find a way to get along, or is it going to be Trump and China? Because if Mexico is more likely to strike a deal and China is a longer-term target of U.S. policy, it may make sense to double down on Mexico instead. And Trump hasn’t (yet) floated any ideas about wanting to make Mexico the 52nd state. As bizarre as it sounds, Trump’s issues with Mexico may be easier to resolve than his issues with Canada.

Losers

  • Suppliers with 90%+ of their manufacturing in Mexico, Canada, or China—and no viable options.
  • Anyone assuming “Washington will fix this” before making actual moves.

3. Going on the Offensive with OEMs

Some suppliers are waiting for automakers to dictate terms. That’s a mistake.

The companies positioning themselves as problem-solvers will be the ones that will come out ahead.

What might work?

  • Proactively suggesting redesigns that use non-tariffed components.
  • Offering supply chain flexibility—“We can shift 25% of production to Thailand if needed.”
  • Bundling value-add services that make it harder to swap out suppliers.

Which suppliers will actually use the chaos to grab market share?

This is a Loyalty Test, Not a Trade War

For 30 years, the auto industry optimized for efficiency. But today, efficiency doesn’t matter.

Loyalty does.

Automakers and policymakers are looking at every company in the supply chain and asking: “Are you committed to U.S. production?”

Government policy, not the market, is now picking winners and losers.

The companies that pass that test will:

  • Win long-term contracts.
  • Avoid the worst of the tariff fallout.
  • Get priority when OEMs consolidate supplier relationships.

The Time for Deliberation is Over. Your competitors are already making moves. Delaying is the most expensive mistake you can make.

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