WASHINGTON — Automotive suppliers have so far been able to weather the storms of tariffs, high interest rates and a rocky transition to electric vehicles, but industry experts said they aren't sure how long business can go on before major disruptions or even bankruptcies start to emerge.

"All of the Tier 1 (suppliers), everybody is nervous. Totally volatile market right now. Nobody knows what decisions to do," said Falc Borchard, vice president of sales at PIA Automation GmbH. The company makes machinery for auto manufacturers in Evansville, Indiana, and other facilities around the world.

Even though the whole auto industry is facing challenges from President Donald Trump's decision to levy sweeping import taxes on vehicles and parts, suppliers are perhaps feeling the biggest strain. Their businesses, according to a top auto supplier lobbying group, provide about 77% of the average vehicle's value but rely on ever-shrinking margins in a competitive landscape.

Attorneys and others who work in or close to the auto supply sector cautioned that the industry is not yet facing widespread insolvency issues. But there could be cascading impacts if vehicle production levels slip — as some analysts expect to happen — and cost-sharing arrangements on tariffs begin to break down.

"It seems like the industry is doing a good job of working collaboratively to absorb these new costs," said Jeff Lamb, an attorney specializing in automotive disputes at the Detroit-based law firm Honigman LLP. "But how long they can do that is, I think, an open question."

"If you see volume start to dip, and you see less money available to keep the system, the whole industry going, you'll see an uptick in bankruptcies," he said during a virtual roundtable discussion last week.

'Remarkable' collaboration, for now

If any major auto supplier goes bankrupt, Lamb explained, there would be a chain of customers and automakers with a "vested interest" in ensuring that the manufacturing and distribution processes continue. He said those parties could "inject capital" into the business to keep it going but warned that "the industry only has so much money available to do that" if several suppliers go belly-up.

Notably, there has been a string of distress signals from suppliers. Take German giant Robert Bosch LLC's plan to cut 13,000 jobs by the end of the decade. Or bankruptcies of multibillion-dollar suppliers Marelli Inc. and First Brands Group LLC. And the smaller-scale local layoff scare at Detroit Axle.

Lamb said the bankruptcies so far have been from companies "already suffering financial distress" that was exacerbated by the imposition of new costs. He added that an industry-wide insolvency crisis, in his view, is unlikely in the near future.

Robert Riley, also a partner at Honigman, attributed that to automakers and their suppliers engaging in a "remarkable amount of collaboration" to keep the industry together during a challenging year.

"There's been ... an increase in the potential for litigation between supply chain partners because of the uncertainty and how that leads to financial distress," he said during last week's virtual roundtable discussion. But the lawyer said his clients have steered clear of suing each other for violating the specific cost and production agreements in their contracts.

Instead, Riley said, companies have acknowledged that "everybody's kind of in this together."

In practical terms, that has meant automakers and their many levels of parts, components and raw materials suppliers spreading new costs across the production chain so no single entity buckles under the weight of tariffs or other stressors. It is unclear how long all parties along the supply chain will be open to that kind of cost-sharing and flexibility.

General Motors Co., according to a report last week by Crain's Detroit Business, added a new clause to supplier agreements giving the automaker flexibility to extend contract terms and set the price "based on a fair cost assessment after receipt of documentation."

Grim expectations, some hope for Tier 1

Even though most auto suppliers have remained resilient throughout the year, there is a widespread sense of gloom in the sector.

About 62% of Tier 1 and Tier 2 suppliers were somewhat or very pessimistic about the health of the auto industry over the next six months, according to Automotive News' inaugural August edition of its Auto Industry Confidence Index. About 14% were optimistic, and 24% were neutral.

The Motor & Equipment Manufacturers Association, a leading auto supplier lobbying group, conducted a similar survey in August. It found that 42% of suppliers do not expect to make money in 2025, according to Paul McCarthy, president of the organization's Aftermarket Suppliers group.

McCarthy read several comments submitted to MEMA from member organizations during an August call with reporters.

"Here's one: 'Tariffs have been body blows throughout the year.' Now there's a good side, glass-half-full and glass-half-empty to this. Thankfully, they're not knockout blows. They're body blows thanks to the aftermarket's resilience, our nimbleness. But it has been a lot of blows."

He continued: "Another quote: 'Just so hard to plan.' Another quote: 'We're dealing with volatility every day. Sales are fine, but significant hits on cash flow and margin. The complexity of all the tariffs interacting is overwhelming, huge. People burn out. People are exhausted from dealing with the next tariff hit.'"

The group's latest Supplier Barometer survey, released Friday, again showed "building pessimism for the fourteenth straight quarter," according to Mike Jackson, the group's executive director for strategy and research.

Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions LLC, said layoffs and closures among suppliers are "not yet" ramping up. "But that is definitely something that could start ramping up in the fourth quarter and next year," he said in a phone interview.

Fiorani emphasized that stress in the supply chain will be strongest among smaller, less well-known businesses: "The bigger Tier 1 suppliers have a lot of experience with this and a lot more play. They can absorb tariffs in the short term and work with manufacturers in the longer term to absorb the cost.

"Smaller manufacturers do not have that ability. These are typically companies that have in the dozens of employees and when the costs go up, they may have to downsize. Worst-case scenario, they will have to close their doors. They don’t have a lot of room to make money at this level.”

Readouts from Wall Street indicate a similar belief in larger suppliers to survive — and in some cases even thrive — in the current high-tariff landscape.

For example, share prices on the New York Stock Exchange for Canada's Magna International Inc. and Southfield-based Lear Corp., two of North America's largest auto suppliers, are both up more than 4% so far this year.

Magna CEO Seetarama Kotagiri reassured investors during an August earnings call that his company is working to reduce the impact of tariffs, revising Magna's estimated annualized tariff exposure to $200 million from the $250 million projected in the first quarter of 2025.

"We have settled with multiple OEMs for substantially all of our 2025 net tariff exposure with them, and we are working with our other customers and suppliers to mitigate substantially all of our remaining exposure, including through recoveries," he said, according to a transcript of the call.

Other major suppliers have had even better fortune on Wall Street. Maumee, Ohio-based Dana Inc.'s share price is up more than 60%, Auburn Hills-based supplier BorgWarner Inc. is up more than 30% so far this year, and Indiana-based Cummins Inc. is up close to 20%.

Most major auto suppliers will report third-quarter earnings at the end of October, giving further insight into the sector's outlook.

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