Inside the Tariff Crisis: What Supply Chain Leaders Need to Do Now

[Transcript]

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[00:00:27] Jim Liegghio: I'm Jim Liegghio from AIAG.

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[00:00:36] Jan Griffiths: Hello, and welcome to another episode of the Auto Supply Chain Prophets Podcast. Let's check in with my co-host, Terry Onica. What have you been up to?

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[00:01:10] Jan Griffiths: Yeah, and we actually had Megan as a guest on the show.

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[00:01:16] Jan Griffiths: Jim, what have you been up to?

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[00:01:41] Jan Griffiths: I looked at the website earlier today, and it is great. The colors, the branding, the brand feel, and you're right—the functionality—it's awesome. But it's exactly what AIAG needed, 'cause AIAG is no longer your grandfather's standards organization. It's a totally different organization.

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[00:02:08] Jan Griffiths: Oh, it shows.

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[00:02:09] Jim Liegghio: It's very purposeful. The team here—100% of the staff—tested the site ad nauseum. My customer success team was fantastic, testing every bell and whistle. We're super excited. It's not just about colors and vibrancy and branding; it's truly about the core of what we do and who we serve in the community.

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[00:02:26] Terry Onica: Hats off to AIAG, I give it a 10. It looks really nice.

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[00:02:30] Terry Onica: Very nice. Beautiful.

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And I thought, "Oh my God, I just wanna get away from it all." So, I did. I got away from it all for a few days, but now I'm back at it again and catching up on all the tariff news. And I am thrilled today to bring on new guest on the show. I wanted us to have a guest that understands what this means right at the heart of operations, right at the heart of automotive manufacturing, and that's why I am thrilled today to bring on the show the CEO of Seraph.

Seraph operates at the heart of automotive manufacturing with a mission to build unified, efficient operations for manufacturers worldwide. Now, that sounds simple. It sounds easy, right? Unified, efficient operations. We all know that's really hard to do.

They are trusted by major OEMs, and I know this for a fact, 'cause I've been involved with them in my previous lifetime with a German OEM. And Seraph is often called upon to lead the turnaround of troubled suppliers.

Most recently, because they're a mission-driven company, the company launched a series of webinars on the evolving tariff landscape, offering critical education and guidance to help manufacturers navigate this uncertainty. And I have seen that audience grow, and I actually look forward to these webinars because they have a lot of data, and they have the perspective that we need. It's not the fluffy talk, it's hardcore data, and what actions do we need to take?

So, today, let's welcome Ambrose Conroy. Ambrose, welcome to the show.

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[00:04:56] Jan Griffiths: Ambrose, let's start off. Level set us with what's your take on what's happening with tariffs right now? What's the view from Washington? For our audience, we are recording this on April the 28th, and we all know that the tariff situation can change any second. So, as of April 28th, Ambrose, where are we at?

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China is really a key issue here. So, when we're looking at tariffs, we have to look at China separately, 'cause there is this trade war against China, and that's one that isn't going to go away anytime soon. So, one of the things we have to accept in all of this is that China's going to be different, we're going to see high tariffs on China, and there was even talk today where Bessent said there might be an embargo against China. An embargo on China being said by the Treasury Secretary is absolutely massive, so we have to keep in mind that things could go to that level.

For the rest of the world, we're seeing things where they're talking about negotiations. We know Vice President Vance was in India. They've got 110% tariffs on vehicles going into India. There are a lot of barriers to prevent us from working with India, and India is shipping a tremendous amount of product out to the United States and to the rest of the world, so there's a lot of pushback on them.

When we look at Canada and Mexico, what we're seeing there is we're seeing the administration really trying to say this—we believe, "This is how we treat our friends, so you certainly wanna be one of our friends. You don't want to be one of our enemies."

I think there's a belief that USMCA got co-opted. Even though President Trump was part of this, he's seen so many union jobs move down, and the fact that he had the UAW present at the announcement for—we call it—Global Tariff Day really signals to me that they're very serious not just about bringing manufacturing back to the US, but bringing Union automotive jobs back to the US. And for a lot of us in the automotive industry, that's hard to fathom because that labor is so expensive, and it'll have a real impact on the price of vehicles. But that's a big push. And they're thinking the chicken tax was part of that. They're thinking there are other things that have enabled us to build more in the United States where the margins were enough that it can support more of these higher wage blue collar jobs. So, we wanna redevelop that working middle class, and I think that's a key part of what this administration's looking at doing.

The other thing that we're hearing today is that they're trying to package different agreements with countries. So, they don't wanna come out and say, "One country has agreed to this." They want six or 10 at a time that they're gonna bring forward. And then once they've got the first 20 or 30 deals negotiated, they're gonna start pushing those out every day so it looks like this wave of tariff deals coming out. And then, every week they're gonna take 3, 4, 5, 6 countries, and they're gonna focus on getting deals done with them.

We believe that there'll be a base tariff rate moving forward. It's gonna be 10 to 15% globally, so the days of free trade are over. We're now back to mercantilism. So there's gonna be one winner, and from a US perspective, that's going to be the United States.

We'll see if that actually plays out, 'cause there are a lot of moving pieces. We're playing chess and it's not a game that we as a country are very good at. So we're playing chess with the rest of the world. We have a short term perspective, and we're gonna have to see what happens as they start to push and try to drive very rapid change to a supply chain which does not move very quickly.

And my view is automotive is a canary in the coal mine, but there are other industries that this is impacting as well. So, medical devices are really getting impacted. We're looking at semiconductors and what's happening there. And we know the semiconductor crisis. So, if we see inflation here, if we see costs going up for goods that people are buying, that's going to drive wage inflation because people are gonna need to afford the goods that they have.

With cars being the second most expensive purchase most people make in their life, we're gonna see auto workers start to get paid a little bit better, and that's gonna put a lot of pressure on other areas of the economy as well, and drive a little bit of wage inflation.

So that's high-level overview. That's what we see happening. But chaos is really where it is right now. No one's able to make any decisions. Everyone's paused—plants, everyone's paused CapEx—and people are just waiting to see what happens. And May 3rd is really a big date. Coming up here. We have to understand what's gonna happen on May 3rd.

If this pause comes off, if automotive tariffs—or if we don't pause, if automotive tariffs actually come in—if everything happens as planned on May 3rd, then we're gonna see things change very, very quickly. But I don't think that we've seen the final text of what's going to happen on May 3rd, and everything seems to change up until and past the very last minute with this administration.

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[00:10:10] Ambrose Conroy: I think everyone's agreed there's going to be a tariff number, and as we start to see text of the "big bad budget bill," as Trump likes to call it, we'll get a better idea. Because I think a lot of these tariffs will be adapted into that bill and adopted by Congress to move forward. And if they're written into law, then they're law—and they're here to stay.

things. And we look back pre-: 1900

So, we're really changing the way that we run the country. We're looking back at things that worked in the past, so this isn't completely novel—it's just not something that we're used to. And we've lived in this very low-tariff rate world for a long time and been taught that globalization was great. But globalization was supposed to be the great equalizer, and part of what we've seen is it hasn't been. This is why I singled out China early on in the discussion.

China's really used state-owned enterprises. They've used state support to get things done, and they throw money around like it's going outta style, including incentivizing companies for acquiring—however they acquire—technology from the West. So, there's this great shift that we're seeing to calling out this—what President Trump has called—unfair Treatment by China to bring things back. And really, there's a push to re-industrialize the United States.

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I spent most of my supply chain career doing that, and now we're seeing an unwinding of all of that work. Ambrose, give us the supply chain perspective on this. What are supply chain leaders faced with right now?

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We're talking specifically about wiring harnesses, and right now he's buying wire harnesses out of Mexico, but because of some things that are going on, he doesn't have enough USMCA-compliant material in it to qualify. He will be paying the full tariff on those coming in. He can't bring them into the United States because labor is such a big part of wiring harnesses. It is an incredibly labor-intensive process. So that's one where we're always gonna need low-cost labor. But there are other things that are just sort of naturally sprung up because of skills in low-cost countries.

We've really lost the desire in America for people to do manufacturing jobs. And one of the announcements that I saw today—and we'll get back to the supply chain piece specifically in a second—but was that there is a push to bring in a million new manufacturing apprentices a year, starting next year, from the Trump administration.

So they announced that today as something they're gonna try to do. They wanna make manufacturing sexy again. They want the youth to come out of high school and find these jobs, and by raising the wages and by doing different things, they're trying to do that. So that, I think, colors what we're seeing from supply chain executives—or at least for me.

If that starts to happen after today, that's gonna change the paradigm and change the strategies. You're forced right now to look at all of these low-cost countries. China was a big place to go to, and we all know that labor rates in China have gone up, so we're not seeing the same kind of incentives to plant a flag there.

So China's not the perfect manufacturing solution that it felt like a decade ago, or even two years ago. China's becoming much more complicated. But you can't just go to Mexico because we've seen Trump put tariffs on Mexico. You can't go to Nicaragua or Tunisia or Morocco right now. You have to really figure out strategically: where do you want to be?

Take a look at a couple of things. Never chase tariffs or taxes or incentives when you're figuring out where you should put your manufacturing operation. We're seeing some companies try to over-automate and just die because they've got too much data, or they try to get this to work perfectly and just have everything Industry 4.0 and it just fails completely. And it's very hard to unplug that and go back to a manual workaround.

And then we're also encouraging people to look at, long-term, where do you wanna develop talent? I've seen human resources go through phases in my life. Early on, there was this view that human resources was about developing human capital. Somewhere along the way, we've shifted to cost control, risk management, and human resources.

We've completely neglected developing human capital. As I mentioned earlier, this apprenticeship program that we're seeing the US government start to try to push—no details are out there; it's just a goal that was tossed out in a statement—but that's how these things tend to start. So, if that actually comes to be, and we see a subsidized apprenticeship program, much like Germany has, that would be absolutely magical for reinvigorating the United States.

And I think that would give us the confidence that we have the technical capability. So, it's not about, from a supply chain perspective, finding the right low-cost place. President Trump, at his Davos speech, said very clearly, "If you wanna sell in the United States, make it in the United States." He's going to throw these tariff flags all the time. He's unpredictable.

The only way to avoid them—the only way to avoid this chaos—is to make it here. So, finding a place to manufacture in the United States, to me, is this strategy that clearly aligns with what this administration is trying to do. What this is about is it's about developing a middle-class industrial base in the United States of America, which is really why we're shaking up Mexico. We're shaking up Canada, 'cause that's where a lot of these jobs went. And the easiest ones to bring back are the ones that are there.

Volumes are low in a lot of supplier plants right now. They're struggling because they can't find the skills. They can't hire extra people because they don't have enough volume in the plants. They've gone as lean as they can, and they need to fix that. So, from an operations perspective, we need to get utilization within our assets up to a certain level. We need to be at 85-90% utilization in our manufacturing plants. And when we're at 45, 50, sometimes less, you just don't have the capital to keep things going.

So, supply chain leaders are gonna have to figure out: how do they fill the plants that they have? How do they possibly vertically integrate a lot more from suppliers? And then how do they plant the supply base closer to where they are, so that they have more control and more collaboration opportunities with them?

I believe that tariffs will continue to be out there, and even if they're just at, let's say, 15%, that's a material impact. Very few suppliers have margins that allow them to eat a 15% tariff. So we need to look at this, and we need to be very aware of what's going on. And we need to understand that President Trump was very clear from the beginning that if you wanna sell it in the United States, you should make it in the United States.

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[00:17:40] Ambrose Conroy: We're really looking at delivery issues. If you start to see delivery issues from your suppliers, they probably have an issue. Some suppliers right now are starting to demand upfront payment for these tariffs. You have to understand why they're coming back to renegotiate, because most of them don't have the organization.

So, it's not just the pure tariff cost—they're having to build in a supply chain team to focus on these tariffs. We're encouraging everyone to set up a process for your suppliers. Be very clear with what the process is. Document it, get it out to them, talk to them about it.

The OEMs are doing a really poor job right now communicating this, 'cause they don't wanna open themselves up to financial risk. If they say, "Here's how we're handling it, here's how you get reimbursed, here's what you can get reimbursed for," then they're basically telling their supply base that, "Hey, you can get money from us. Just come to us and ask."

I think we're gonna have to get to the point where that happens. So, the best models that we're seeing and helping people develop right now—we're encouraging everyone: model your supply base. Get all of the suppliers in it. Look at sensitivities—what happens at different tariff rates—and you have to do that by country. You have to look at country of origin. You have to look at your HTS codes.

Everyone that was bringing stuff in from Mexico. No one cared about your HTS code with goods coming in under USMCA or NAFTA, 'cause it just didn't matter. But now it matters a tremendous amount. And content matters a tremendous amount for everything that's getting supplied because you're trying to avoid these tariffs.

So you look at quality issues, you look at delivery issues, you look at all of the basics that you'd normally look at to identify a bad supplier, and you look at the suppliers that are pushing back. Some of the suppliers that are pushing back are kind of be your strongest suppliers, but some of the ones that are pushing back are also ones that are on the verge of bankruptcy.

And I was on a MEMA call on Friday, and they had someone on there talking, and what their analysis was that 20% of the supply base is going to be severely distressed coming out of this—20%, one in five.

So you have to be looking very closely for any anomalies coming out of your suppliers—any pushback, any quality issues, any delivery issues—and really knowing who those suppliers are that are weakest. You know who's in trouble, you know who you've been talking to already. But you need to have that list, and we're encouraging everyone, for this whole issue, to set up tariff and trade war room specifically for this. A supply chain war room really so that you understand what's happening. 'Cause this isn't just about tariff and trade; it's also about financial distress. It's about needing to dual source, or resource, or redesign so that you can take control of these extra costs that are coming in right now.

There's a lot more work than we've had to do, and organizations are realizing that they have to add resources right now. And the challenge is that the resources that were out there have been soaked up right now. If you need someone who is great at importing or who understands HTS codes, good luck finding them on the open market, 'cause they were all hired two months ago.

And you're going to either pay a firm that has those experts in-house to do it, or you're going to pay an absolute premium to get those people. And you're not gonna know what you're getting because you don't have a whole lot of choice right now.

The third factor that most people aren't looking for is that pushback. And that pushback can either be really, really good, or it can be really bad. And you have to differentiate between those, and that requires people calling and talking to their supply base. And that's something that, since we've become so automated, very few organizations like to do—or have the people that can do it. Human communication is more critical now than ever.

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[00:21:30] Ambrose Conroy: I'd say it's never too late. But part of what we're encouraging people to do, as I said—one is, you've gotta get that supply chain trade and tariff war room set up. So, you need to have that set up. You need dedicated people in there, and they can't be your second-tier staff. This has to be your best and your brightest, 'cause right now, this is about survival of the business. And if you're not doing that, the whole business could fail. So you wanna make sure you put your best and your brightest, and you've dedicated them in there. And by dedicated, I truly mean they have no other responsibility than making sure we're prepared, running the models, and making sure things are set.

Then I'm encouraging people to make sure you have a comprehensive commodity and supply chain model, and that includes your HTS codes, your country of origin, and sensitivities for all the things that could change.

Identifying the suppliers that have the biggest delivery or quality risk, and then identifying those which are really strong and might be able to take more product on. We're also trying to start to take a look at, based on real data that we have, who has capacity. So, if we have a really good supplier that has extra capacity, that's in the United States, let's ask them to take on something from someone else. Let's see if we can help fill up their plant, 'cause the more business we give them—and this sometimes is counterintuitive—the more business we give them, the stronger their organization can become. We need our suppliers to make money right now. We need them to be profitable so that they can survive and thrive to help us.

Then we wanna reboot the commercial strategy as a whole. So not just taking a look at the suppliers and setting some clear parameters about how you come in, and how you ask for money, and how you're gonna get reimbursed. But we have to have a path to go to the OEMs. We have to be data-driven. We have to be able to articulate exactly what this costs.

And it's not just the number for the tariff. It's the people that we're adding. It's the customs brokers fees. It's the cost of carrying the amount that we're spending, 'cause money's not free anymore. We've got a high interest rate, high inflation environment. So this is only gonna make that worse. And we have to be able to have some escalation with the OEMs. We have to be able to go in and have those data-driven discussions.

Nobody wants to be first—you want to be second—but at this point, there's gotta be a way to go in. And as I said, we're seeing some of the OEMs saying that there are conquest opportunities here. Some suppliers are going in where they have that extra capacity, and they're saying, "Hey, fill our plant up so that we can be financially stable and we can work with you."

We're encouraging everybody to fortify their balance sheet. So, do whatever you can. If you've got excess stuff around, sell it off. Raise cash. Treat this like a financial crisis, and do it sooner than later, 'cause you don't wanna be sitting on assets that you're not gonna use. CapEx that's not important. You wanna look at your product lines. You may have some products that you're selling—especially in the aftermarket space—that were great. They're very low volume at this point in time. By the time you look at the setup and the tear down costs, and just actually making any of them, the economic run quantity is far higher than you're ever gonna sell.

Maybe you hand those off to someone else. You give them back to the OEM. Or you build up enough that you can do a one-time build, but you don't wanna carry that on your books anymore. You gotta get that off of your books.

And then we're looking at encouraging people to really reassess their footprint for their supply chain and for their own manufacturing base. We're seeing a lot of operations right now where they've got plants operating at less than 50% capacity. You wanna see—can you put two together? Can you get rid of the cost of that extra roof? Can you free up some really high-caliber labor for yourself that you can deploy to another plant?

This is all about: how do we strategically move pieces around the board? How do we know what our footprint should look like? How do we get as much as we can into the United States, where we don't have that tariff impact at all? And then use that to sell to the OEMs, to say, "Hey, I've moved this in," or, "I've got the ability to move this in. Let us fill up our operation. Let us do work for you. Let us save you some money long-term, and let us be financially stable so that we can help and be a great long-term partner for you."

But you have to be proactive to do those things. And if you haven't put together this really high-caliber team, or you don't have this high-caliber team, you're in trouble.

I wanna make sure that the industry is actually getting prepared—we've got the models in place, we've got the internal people in place, and we're ready for this reindustrialization drive. Because if we don't do this, the whole industry's gonna get sucked. You can't build a car missing one part. Every single part needs to be there. So, we have to pull together as an industry, and we have to find a way to start addressing these problems, understanding this tariff chaos that we have right now, and moving forward.

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[00:26:05] Ambrose Conroy: What I've seen from the best-in-class companies is they're willing to invest. They invest in people. They invest in processes. They invest in equipment. The poorest performing companies that I know of, they try to cut their way to profitability. And there's only so many cuts you can make. And at some point, that pain becomes so great, 'cause you've cut so much, you're basically just gonna die.

So, the best-in-class companies are really looking at how do they find, attract, retain, and grow—grow being a key thing—the best people. Their human resources departments are about human capital management and development. They're not about cost control and risk management. They're willing to stop, align, do upgrades.

They're slowly trying to roll out automation on the shop floor. They're bringing in the latest and greatest systems. They're doing the updates as they need to do them. They're not sitting back, waiting on something that's 10 years old or 15 years old. They're continually reinvesting in their business.

And they're investing in engineering as well on that product development side. One of the things we see right now is that product development side is getting pillaged so that people can deal with this tariff stuff. The best companies aren't doing that. They've got a supply chain team, and they're supplementing it with other resources so they're not putting their future launches at risk.

'Cause anytime you pull away from your new product development and introduction team, it's gonna come back and bite you—and it's gonna come back in poor launch and cost quality later. And the cost of that is so much more than spending that money today. And the best companies know that, and they have the cash on hand to manage that and do the right things.

The companies that have already cut to the bone—they don't have the reserves, they don't have the financial wherewithal to really make the decisions they should make. A lot of them know what they should do at this point in time, or they know they should do something differently than they're doing but they don't have the financial resources to do it, and they're not able to go to the OEMs and present a structured data case to get money back. And they're not able to manage the suppliers who are coming to them and saying, "Hey, we need 25%" or "We need 170% more than we had contracted for," because that's the tariff that we're being faced with right now.

So there's a lot going on. Those that are best—those that are world-class—continue to invest. They invest in their people, they invest in their plants, and they've got processes that they follow. And that, I think, really sets them apart from those that really are on the bottom who have just cut their way to oblivion. You can never cut your way to growth, and that's the problem I see.

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[00:29:07] Ambrose Conroy: We have to become more collaborative as an automotive industry than we know how to be. We have to figure out how we communicate, how we work together, and acknowledge that this isn't about everyone getting every last penny out of this. We have to work together as a community and figure out how suppliers can survive, because you can't build a car if you're missing parts. So, this is going to require a paradigm shift from purchasing at the OEMs. It's gonna require a paradigm shift at the supply base as well.

We have to find a way to be more collaborative. The model I like to look at is Honda—how they go through and they audit the books and they make sure all of their suppliers are making a certain profit so that they can stay viable and move forward.

The. OEMs are going to have to really change, but we, as an industry, the supply base is gonna have to figure out very proactively: how can we start to move things back to the United States? How can we shift things? We're having discussions with some suppliers right now who are going to do rip-and-run moves. They're not asking the OEMs for permission. They're gonna move it, and they're gonna tell 'em that they want the part, "Here it is." They're not doing revalidation—and these are obviously not safety-critical parts. They're not doing anything. "Here it is. If you want anything else, you have to pay for it. But we've moved it, and it's the only way we can do it to survive."

So I think we're going to see that extra capacity that exists right now, in the near term, fill up. So, the plants that are at 50% are gonna get up to 85 or 90%. Then we're gonna see new investments starting to happen in the US—but that's gotta have labor that's developed for it. So, I was really enthusiastic to see the announcement of the apprenticeships. If we really do get a million apprenticeships that the US government helps to subsidize and get going—so we get a million more people coming outta school, going into manufacturing a year—that would be magical. But that's what we need in order to have this manufacturing renaissance if we wanna reindustrialize the United States.

So, we'll see it start to fill up right now with what we have. Then we'll see the next boom, which is going to be things moving back to the US which are much more automated. It's not gonna be the parts that are high labor. We're not gonna see why our harnesses move back to the United States—I don't think ever. But we're gonna see the stamping, we're gonna see the electronic assembly, we're gonna see a lot of these things where you can have machines that do it, where things change very little, where you can absolutely automate and you can do things.

And then we're seeing really interesting things. There's this company called Future AI—it's this robot company, humanoid robot company—and I've seen a lot of videos of them. BMW has started to deploy them in Spartanburg. So you've got these things going in there.

So I think it's gonna be things where you can bring in tools, automation to help reduce labor, and that's gonna be the medium-term wave. And then long-term, it's going to be: things are back here, and the supply base needs to be here because the bulk of the manufacturing is here. And you're going to lose out if you're not close.

So we're gonna get to this point, and I think the communication that we're gonna build is going to really help us move forward. We're gonna get to know each other again. There's gonna be a lot more talking. There's gonna be a lot more communication. We're gonna have to figure out this thing—when I was young, you had to pick up a phone, and it wasn't a cell phone yet, I actually had to pick up a real phone and call someone to get something done. We're gonna have that happening again. It's not "send me a text," "send me an email." It's gonna be, "Let's have a conversation, just like this. How do we make things better? How do we work better together?"

So, suppliers and OEMs are gonna have to communicate. The supply base is gonna have to develop a dialogue, and we're going to have to collaborate moving forward. If we want to get through this short-term pain—there's gonna be pain—but we can communicate, and we can get by it.

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[00:32:43] Ambrose Conroy: Thank you all. Appreciate it.

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