Today, Auto OEMs and Tier 1 suppliers navigate increasingly complex tariff scenarios. For example, aluminum raw material is cast into a piston in Canada, then shipped to Detroit for machining — incurring a 25% tariff based on the piston’s value. After machining, the piston returns to Canada for engine assembly, where it is exempt from Canadian tariffs on auto parts. The completed engine is then sent to a vehicle assembly plant in Mexico, traveling through the U.S. without additional tariffs under the USMCA agreement. Finally, the assembled vehicle crosses the Mexico-U.S. border, triggering a 25% tariff on the vehicle’s non-U.S. content. Throughout this process, a single part may cross borders several times before becoming part of a finished vehicle.  

Several OEMs, including Mercedes-Benz, Stellantis, Honda, and Toyota, are considering options such as pausing production in Canada, increasing U.S. production of alternative models, or halting vehicle manufacturing for the U.S. market in Mexico. Meanwhile, suppliers like Lear, Dana, Magna International, and BorgWarner have announced layoffs, factory closures, and spending reductions in recent months. If tariffs remain in place for six months, greater than 50% of suppliers indicated they would cut or delay investments. Morgan Stanley projects that with every 10% increase in vehicle prices, sales could decline by 5% to 7.5% and Automakers could face a loss of up to 3.2 million U.S. vehicle sales if they attempt to pass the full cost of tariffs onto consumers.  

Tariffs are not a new challenge. For example, some OEMs in the past, like Mercedes-Benz, manufactured Sprinter vans in Germany, then partially disassembled them for shipment to South Carolina, where they were reassembled to avoid U.S. tariffs. To navigate these complexities, business leaders must adopt a proactive, agile, and strategic approach to risk management, developing scenario plans to address a wide range of potential disruptions. While the past focus was primarily on minimizing supply chain costs in a global free-trade environment, today’s supply chain leaders must prioritize flexibility, build in additional redundancies, and create strategic sourcing options for rare materials, components, and technologies. Given such complexity, how can Auto OEMs and Tier 1 suppliers stay ahead of the curve and develop a tariff action plan across strategic, tactical, and operational horizons? Blue Yonder offers a solution — enabling a comprehensive tariff strategy in as little as 7 days. 

1. Supply Chain Network Design Optimization for Tariffs 

The example above highlights the importance of building a digital twin of your supply chain, enabled by digital supply chain network technology. This visibility extends beyond Tier 1 suppliers to Tier 2 and beyond — critical for identifying hidden tariff vulnerabilities. 

Tariffs can significantly raise production costs, particularly for automakers dependent on global supply chains. Companies might need to move parts of their supply chain closer to domestic markets, potentially creating local jobs but at a higher cost due to increased labor expenses. 

A robust risk mitigation strategy balances lean efficiency with resilient performance. This includes network redesign, tariff exposure analysis across raw materials, WIP, and finished goods, and sourcing strategies aligned with your organization’s risk appetite. Diversifying manufacturing and supplier bases — through a mix of offshoring, nearshoring, and onshoring — is essential. A multi-sourcing and multi-shoring approach, guided by needs, cost, service, and risk scenario trade-offs, will strengthen supply chain resilience against disruptions. 

2. Demand-Supply-Inventory Scenario Planning for Tariffs 

Amidst tariffs, trade tensions, inflation, and supply chain disruptions, auto manufacturers need to prioritize “what-if” scenario planning in the short to midterm, as long-term network design and optimization strategies may take time to materialize. 

Simulating the impact of tariffs, supplier shifts, or production relocations allows companies to assess effects on cost, margin, service levels, and customer delivery trade-offs. Portfolio segmentation by revenue, margins, and tariff exposure, coupled with a review of existing demand, supply, and inventory plans, will further help mitigate tariff impacts and enhance decision-making under uncertainty. 

OEMs must assess the potential volume impact of tariffs and evaluate supplier shifts or production relocations to balance customer delivery, achieve revenue goals, and control costs while planning their business strategies. To navigate tariff-related challenges, it’s critical to identify the most affected areas of the product portfolio—analyzing revenue, margins, and costs by segment—and to conduct scenario planning across demand, supply, and inventory. These insights support better decision-making in uncertain environments. Key strategic choices may include shifting focus from price-sensitive segments to premium models less affected by tariffs, implementing price increases despite competitive pressures, adopting cost-efficient sourcing and production methods, timing product launches effectively, and exploring partnerships or alliances with other OEMs to secure alternative production capacities. 

3. Supply Chain Network Mapping and Multi-Tier Visibility for Tariffs 

To counteract the risks of tariff-induced disruptions, companies must diversify their supplier base, which adds complexity to the supply chain. This underscores the need for improved multi-tier visibility and stronger supplier collaboration. 

Enhanced end-to-end tracking — from procurement to distribution — allows organizations to measure and quantify the real impact of tariffs. This visibility is critical for adjusting strategies, such as accelerating shipments ahead of tariff implementation dates, reconfiguring supply networks, or entering new, more profitable markets. 

Building a Resilient, Connected Supply Chain – Blue Yonder’s one-week assessment 

Although the financial impact of tariffs cannot be completely avoided, Blue Yonder’s one-week assessment equips Auto OEMs and Tier 1 suppliers with the tools to incorporate tariffs and related trade policies into their supply chain strategies and planning. 

By better matching supply with demand, reducing costs, and improving agility, organizations can minimize the impact of constant change. In an era of global trade disruption, the companies that succeed will be those who can see clearly, choose wisely, act quickly, and adapt continuously — capabilities made possible by a fully connected supply chain network.