New US tariffs adding to German automotive suppliers' woes

Berlin – Germany’s automotive supply industry is facing mounting pressure from proposed US tariffs, declining orders, and domestic economic challenges, according to the German Automotive Suppliers (ArGeZ).

In a 31 March statement, the industry called for urgent policy measures to support competitiveness and investment to mitigate the increasing challenges faced by the industry.

US tariffs 

A US government plan to impose 25% tariffs on the imports of cars from April, and car parts from May, has intensified concerns about Germany’s manufacturing competitiveness as a location, said ArGeZ.

While some suppliers may pass costs to US customers due to a lack of domestic alternatives, others may shift production to the US, especially those with a global footprint.

However, for smaller, domestically focused suppliers, the impact could be particularly severe, as major car manufacturers adjust production and value chains in response to the tariffs.

ArGeZ has urged the European Commission to negotiate a resolution, warning that shifting production outside Europe could disproportionately harm smaller suppliers.

“The EU Commission must now negotiate skilfully and ensure that there are no tariffs as far as possible,” said ArGeZ spokesperson Christian Vietmeyer.

Structural decline 

Apart from the threats posed by the trade barrier, the German automotive supplier industry remains in deep structural crisis, with production falling 4.9% year-on-year in 2024 and sales down 4.7% compared to the year before.

ArGeZ linked the downturn to struggles in key customer industries, including automotive, mechanical engineering, and construction.

Citing its first supplier index survey, ArGeZ noted that export share rose to 41.7% in 2024.

ArGez, however, stressed that the increase did not reflect improved competitiveness— rather, it signalled a worsening domestic market.

With capacity utilisation at just 71.7%, demand stimulation is urgently needed to prevent further job losses.

The industry, according to ArGeZ, shed around 2.4% of its workforce – roughly 20,000 employees – in 2024.

Although business sentiment improved slightly from December’s low, it remains deeply negative, with only 12% of companies rating their situation as “good.”

ArGeZ introduced the supplier index, surveying 173 suppliers providing components to German-based automakers such as Volkswagen, BMW, Mercedes-Benz, Ford, and Tesla.

The survey, which included 388 manufacturer evaluations, examined supplier-automaker relationships across five criteria, including payment practices, cooperation in development, and contract fairness.

Payment reliability scored highest at 66.5 out of 100 points, while fair contract terms received just 47.5 points, indicating that many suppliers feel they are not treated as equal partners.

The industry also highlighted high labour and energy costs as key factors making Germany less competitive as a manufacturing location.

Furthermore, despite “an urgent need to increase productivity through automation,” ArGeZ said suppliers are delaying investment decisions.

“This reluctance must now be broken,” the association said, calling for a “noticeable” cut in electricity charges to improve competitiveness.