Automotive Suppliers to President: Steel Tariffs Pose Significant Hardships on Industry, MEMA Reports

RESEARCH TRIANGLE PARK, N.C., June 16 -- Members of the Motor & Equipment Manufacturers Association (MEMA) and the Original Equipment Suppliers Association (OESA) are urging the Bush administration to re-examine the impact of its steel tariffs on the U.S. automotive supplier industry.

In a letter hand-delivered to President George W. Bush today, association members said that the administration's Steel Safeguard Program has created severe economic hardship on U.S. manufacturers of automotive parts and components.

The letter highlights three specific areas of concern to the supplier industry:

The allocation and rationing of domestic steel has the potential to severely disrupt the continued production of automotive parts and components as well as cars and trucks throughout the United States U.S. suppliers face steep and sudden increases in raw material costs, which cannot be carried forward to vehicle manufacturers in the current market The components industry is witnessing a rapid shift of customers' purchases from domestic to foreign sources of automotive parts and assembled component systems. The automotive supplier industry is one of the nation's leading consumers of steel, with the great majority of that consumption stemming from U.S. steel producers. According to the American Iron and Steel Institute, 55 percent of a typical car's weight is steel, and North American carmakers and suppliers use nearly 18 million tons of steel per year (1998 figures).

The letter to the president states, "Any disruption in the supply of raw materials, as we are now beginning to witness in regards to steel, has severe implications not only for automotive parts and components manufacturers that directly purchase steel, but also for every company in the entire chain of production culminating in the final assembly of a finished motor vehicle."

The Steel Safeguard Program was enacted at a time when U.S. automotive suppliers face strict cost reduction mandates, the associations' letter notes. "Failure to meet the targets can often disqualify a supplier from winning future business with a particular automaker and result in the loss of current business. As a result of the program, our companies are facing raw material price increases ranging from 20 to 50 percent, effective immediately," the letter asserts.

Even in this early stage of the program, many automotive suppliers' customers are already shifting to foreign sources of supply for intermediate and finished automotive products. "This has resulted in the loss of business for U.S. suppliers and, if not addressed, will result in a loss of U.S. jobs," the MEMA/OESA letter states - a situation that will worsen over the three-year span of the Steel Safeguard Program.

Any decline in production due to lack of raw materials or shift to foreign sources and related job losses would impact the nation's continuing economic recovery. The associations note that the automotive industry remains the single largest manufacturing sector in the United States, accounting for over 5 percent of America's gross domestic product. Motor vehicle production facilities and related industries employ 6.5 million people in the United States, 2.2 million of which are directly employed by the U.S. automotive supplier industry.

"We are seriously concerned that the economic hardships caused by the Steel Safeguard Program will erode the ability of automotive suppliers to contribute to that recovery," the letter states. "We firmly believe that reductions or even full-scale shutdowns of automotive assembly lines were not the administration's intention, but these could nonetheless occur if the current problem is not promptly addressed," the MEMA/OESA letter notes.

The letter concludes: "We urge you to initiate a review of the effect of the Steel Program on our industry and on other consuming industries as soon as possible."

Founded in 1904, MEMA exclusively represents and serves manufacturers of motor vehicle components, tools and equipment, automotive chemicals and related products used in the production, repair and maintenance of all classes of motor vehicles. Make MEMA your first call for global intelligence on the motor vehicle supplier industry, leading-edge market research, international business support, government representation, industry networking and commercial services. Experience MEMA, www.mema.org .

MEMA is headquartered in Research Triangle Park, N.C., and has offices throughout the world including in the United States, Mexico, Japan, Brazil and Belgium. The Original Equipment Suppliers Association (OESA), MEMA's affiliate association that exclusively serves automotive original equipment suppliers, is located in Troy, Mich. MEMA co-sponsors the Automotive Aftermarket Products Expo (AAPEX) in conjunction with Automotive Aftermarket Industry Week, held annually in Las Vegas, Nev.

SOURCE: Motor & Equipment Manufacturers Association