In April, David Pate, TBM’s VP of Operational Excellence, was a guest on Ward’s Auto Group’s well-known podcast, hosted by Senior Editor David Kiley.
The conversation centered on how companies across the automotive industry are managing through the volatility, including insights from David Pate on certain internal improvements companies can be making to help counter the effects. The following is a summary of the discussion.
Even before the tariffs were announced the day after April Fool’s Day, the big picture questions for automakers and their suppliers – as well as many other industries affected – immediately came to mind. How much Mexican/Canadian production can realistically be shifted back to the US? If we need to build new facilities domestically, how long will it take to be fully staffed and operating? Can we cut back on using parts and components sourced outside the US, and still maintain standards and quality?
While it is natural to focus on the challenges that may come, especially when significant change like this happens almost overnight, the more effective path is to candidly reassess where priorities can and should be re-shifted. No matter which way we look at it, automakers and OEMs are in a very tough spot. They know tariffs are coming, and that they will likely be in place for a long period of time. At the same time, however, the changing narratives on how much the tariffs will be and when they will go into effect make it impossible to plan ahead with any sense of conviction. As TBM continues to work with companies through this disruption, we are seeing a general shift away from significant growth initiatives in favor of strengthening and streamlining their core operations – in other words, tending to their own knitting instead of looking for an external growth boost.
Key Considerations
One positive thing the auto industry has on its side as it navigates this instability is that this is not its first rodeo. Companies have successfully traversed this terrain before and will do so again – in part because of the knowledge that there are always internal-focused levers to pull that can both act as shock absorbers and position organizations to come out stronger on the other side.
It has been a natural impulse for many auto makers and OEMs to think about ways to increase capacity and production closer to home – through major initiatives such as reshoring and near-shoring operations, changing and moving suppliers, or expanding and building new physical plants. Our typical counsel, however, is that while these can be highly effective solutions in the right situations, companies need to be careful what they wish for in terms of the amount of work involved. These types of large-scale initiatives absorb a tremendous amount of time and require massive resources for successful execution, and delays are inevitable. In fact, we are starting to see some companies that have gone down this road face hard realities amid this volatility. As one recent example, a plant that had been promised for reopening in 2023 as part of broader UAW negotiations continues to get pushed back and is now on track for 2027.
Know Your Costs Down the Line
As both automakers and suppliers mull their best paths forward, one common denominator is an increased urgency to fully understand every single piece and associated cost in their supply chain processes, including getting a handle on production cost differences in the regions where they operate. This, of course, helps inform any big decisions made, such as opting to reshore or near-shore. As they audit their costs, Total Landed Cost and Total Cost of Ownership (TCO) are key metrics, with the former being the cost to purchase and get the product to port, and the latter including any and all other costs involved in delivering the product to the final site. There is a TCO Estimator available at the Reshoring Initiative to help companies better understand their overall exposure and vulnerability to tariffs and other supply chain risks.
At the end of the day, there is so much more than just parts and shipping for auto companies to consider. Each additional link in the supply chain drives costs up, and the variability makes it difficult for companies because they are forced to decide whether to stock up on inventory to make sure they can meet demand, or face shortages if and when demand wanes. Along with performing standard assessments, we advise companies to view this as an opportunity to find ways to get better and stronger from within. Ask yourself lots of questions. Where can we remove waste? Where can we make improvements that will have the most direct, tangible impact? Can we make any changes in our materials? Now is the time for companies to make sure their supply chains – from start to finish – have fewer inputs and off-ramps but still maintain quality.
Triple Challenge: Producing More, Lowering Costs, Hiring and Developing Talent
The prevailing sentiment seems to be that the tariffs, in whatever final form, will stick. While this brings obvious challenges, it also gives companies a window of opportunity to more fully assess their risks and opportunities, and to make improvements in areas that can make a difference. For example, higher tariffs will make it more expensive for companies to produce goods here in the US, so how can they lower their costs to produce? There are also widespread labor shortages, so who will do the work once we have it here?
One key but often-overlooked strategy is to continually invest in your existing workforce through better recruiting and retention strategies. This is a vital area where many companies in the manufacturing sector tend to fall short. They either allow their training and development programs to go stale, or – and this is another major issue – they have skills gaps in leadership positions that come back to bite and cause real problems. Many studies have been done on skills gaps, one of which found that two-thirds of employees (67%) would forego a pay increase in favor of reporting to a new manager. More companies need to keep this in mind as they work to retain existing talent and recruit new skillsets.
Businesses across all sectors are finding their skilled labor pools lacking and are turning their focus to retention, exploring new tactics and strategies to make the talent they have on board happy, motivated, and engaged. What does this look like? Beyond making sure people are paid competitively, empowering them and giving them a voice in the process can and often is a very powerful engagement catalyst. Of course, people need to pay their mortgages and feed their families, but the feeling of being a valuable contributor is also an important, underrated need.
In terms of recruiting and onboarding, companies typically do not churn long-term employees – the churn tends to happen within the first three months of employment. This is another area where automakers and suppliers can get stronger. Once they get new talent in the door, there has to be an investment and commitment made – one the employee notices and appreciates – to get them properly onboarded, trained, and developed. This can help avoid a shelf life of three months or less. Also, it falls on recruiters to do a super sharp job of screening and identifying the right people for the positions.
How Companies Can Help Broaden the Labor Pool
Another dynamic at play when it comes to hiring new talent has been in place for decades, and we continue to see its effects across the automotive industry. We have drifted away from manufacturing as a place where people can build fulfilling, enriching careers – whether you are a skilled tradesman or college graduate. From an economic perspective, manufacturing is the main engine behind GDP so if you want to work in an industry that is at the tip of the spear of growth, this is it.
By being more proactive in communicating the exciting aspects of manufacturing – be it cutting-edge design or advanced technologies – companies themselves can do their part to try to turn the tides. AI, for example, poses all sorts of tantalizing business opportunities, and will become a more integral part of how companies conduct business with their customers. Being active within local communities can also help create a wider net. One area where we tend to see shortages is welding, which is a crucial function across so many industries. We can say from experience that there is value to be had in working closely with local community colleges, vocational schools, and high schools to create and spark interest and set the foundation to develop those skillsets that are needed. If you build it, they will come.
The Long Haul: Building a More Resilient Automotive Future
In a time of uncertainty and disruption, the automotive industry is being called to do what it has always done best: adapt, evolve, and lead. While the road ahead may be riddled with volatility—from tariffs to talent shortages—there is also a clear opportunity for companies to take control of what they can. By focusing inward, strengthening core operations, investing in people, and making smarter, more informed decisions about their supply chains, automakers and suppliers can not only weather the storm but emerge more resilient and competitive. The companies that will thrive are those that embrace this moment not just as a challenge, but as a catalyst for meaningful, lasting improvement.
