Automotive tool makers caught in tariff crossfire

SOUTHFIELD, Mich.—A profit pinch point is developing for auto makers and suppliers working on new vehicle platforms: the cost of the tools to build them.

Tool makers are adding tariff costs to their prices, says Laurie Harbour, a consultant who works closely with the North American supplier and tool-and-die industries.

Harbour warns that a wave of higher-than-expected bills from tool shops soon will hit the auto industry. Tool makers are dealing with higher prices for steel as a result of a new 25 percent U.S. import tariff on the metal, as well as tariffs on specific Chinese-made automotive tooling.

Imported automotive injection molds have been hit with a tariff, and that is spinning uncertainty through the tooling industry, said Harbour, CEO of Harbour Results Inc. in Southfield.

A major shift in automotive tool manufacturing has occurred over the past two decades with China emerging as a key source for North American manufacturers.

Further complicating the outlook is how the U.S. and Canada will resolve the North American Free Trade Agreement. Some 80 percent of the auto industry's injection molds are traditionally produced in Canada—largely in Windsor. In some cases, Canadian tooling companies also now rely on Tier 2 content from China.

"Every tool out of Windsor will face an added tax," Harbour said. "It will change the equation on every part and every vehicle that relies on that tool.

"Adding 25 percent to the price of an item can have a huge impact on its profit margin," Harbour said. "It's not clear who's going to absorb the added cost. If I'm a toolmaker, it might be all of the margin I had on the job."

Vehicle projects require large numbers of new tools. A single front fascia package might require the creation of 50 tools. A vehicle redesign could involve $200 million worth of tool orders.

Harbour said tool shops and suppliers are scrambling to understand how they will be affected by tariffs on molds, steel and aluminum. She said some of her clients have been asked by customers not to source the tools they now need for future vehicle programs from China. Some suppliers have even been asked to claw back tool orders they made with Chinese vendors, she said.

The new border scrutiny is requiring Canadian tool suppliers to provide certificates of origin to account for the content of their products. Harbour is advising clients to assign dedicated managers to track trade issues.

"On the positive side, this could be great news for U.S. tool producers," Harbour said. "We're already seeing some tool work leave China and come back to North America. I think you could see many customers deciding that it's just too risky to rely on imported tools, and just opt to make what they need here.

"But the trouble right now is the uncertainty," she said. "These programs move on a tight schedule. There's not much time for unknown factors."