“The customers have a level of understanding of what the impact is,” Adient President and CEO Jerome Dorlack said Jan. 28 on a call with investment analysts. “We’ve made it clear to them that this is not — at a 25 percent level or even at a 10 percent level — a burden that Adient is prepared to take on to our P&L on an ongoing basis and there will be a need for recovery that has to then be passed through the value chain.”
Dorlack said the company is engaged in “meaningful dialogue” with customers, working through the issue “in a very timely, I’d say almost hourly basis, in some cases.”
A similar discussion is happening between customers and suppliers up and down the automotive supply tiers as tariffs threaten to hurt bottom lines and ultimately increase the cost of new vehicles. As one of the first publicly held suppliers to report quarterly earnings this year, Adient provides a window into how tariffs will be absorbed by the supply chain.
Adient, which specializes in seating systems, finished its fiscal first quarter with adjusted net income of $23 million, down 20 percent year over year, on revenue of $3.5 billion, a 5 percent drop from the year prior.
The company faced several headwinds, including inventory destocking in North America, particularly automakers working to reduce pickup inventory. Adient was also hit by softening demand in Asia and underperformance in China, where the supplier is working to win domestic OEM business as traditional European, Japanese and U.S. automakers bleed market share.
“We are taking actions to grow rapidly with Chinese OEMs,” Dorlack said.
When Trump first came to office in 2017 and imposed tariffs on China, Adient moved some of its manufacturing in the Far East to Mexico, where it has built a large footprint of 18 plants, according to its annual report to the Securities and Exchange Commission. Many other suppliers, including rival Lear Corp., also have big operations south of the border.
Dorlack said it took Adient 12-16 months to work through its tariff mitigation plan the first time around. Under Trump’s proposed tariffs now, the stakes are much higher.
“If you look at the magnitude of where these tariffs sit at, at a 25 percent or even 10 percent range, it’s a question of speed,” the CEO said. “Obviously, given the magnitude of these, we would need to work through this in a much more expeditious manner.”
The benefit of having been through it once before is that Adient, and the entire industry, should be in a better position to deal with it, Dorlack added.
“I think it also prepared the industry and our customers in terms of how not only Adient but also the entire supply base and the value chain, would be approaching and working through these types of solutions,” he said.