Accelerate Auto Parts Greening and Nearshoring

The dramatic trend reversal in US automotive parts sourcing from distant regions like China to nearer locations like Mexico could be a strategic game-changer for U.S. automotive supplier sustainability. This nearshoring trend is being driven by a mix of environmental regulations, economic pressures, and the operational challenges that many Original Equipment Manufacturers (OEMs) and Tier I suppliers faced and accelerated during and after the pandemic. ?

A recent example comes from a Tier I supplier responsible for logistics and part sequencing for Stellantis’ U.S. vehicle assembly plants. This supplier saw an 80-percent reduction in business over two years, driven by shifting sourcing strategies, forcing them to consider downsizing their warehouse operations. This stark reality underscores the importance of rethinking global sourcing strategies in light of changing market conditions. ?

While the move toward nearshoring isn't entirely motivated by sustainability, its environmental benefits are clear. By shortening logistics routes, companies reduce their reliance on ocean freight and trucking, significantly cutting down on Scope 3 emissions. The switch from long-distance to regional supply chains aligns with the broader sustainability goals many automakers are setting, adding resilience and lowering carbon footprints. ?

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Sustainability Beyond Profit: The Business Case for Nearshoring ?

The pandemic exposed how vulnerable overextended supply chains can be. Post-pandemic, many remained in a stop-start mode for years, disrupting production and impacting bottom lines. Shortening supply chains through nearshoring offers companies an opportunity to reduce these risks while supporting sustainability goals. By minimizing reliance on long and unpredictable freight routes, firms not only reduce operational risks but also cut down on fuel consumption and emissions. ?

The trend toward nearshoring is a prime example of how sustainability initiatives can extend beyond traditional environmental goals and contribute meaningfully to a company’s operating risk profile. This makes it an attractive option for many companies under pressure to meet new sustainability mandates from both regulators and customers. According to McKinsey & Company, cutting carbon emissions can yield substantial cost savings while improving supply chain resilience , helping OEMs and suppliers alike weather market fluctuations more effectively. ?

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Tier I Suppliers and OEMs are Redefining Sourcing Strategies ?

Multiple Tier I suppliers of automotive interior and exterior modules, such as door panels and headliners, have shared that major U.S. OEMs, including General Motors and Stellantis, have directed them to cease sourcing from China for new programs. The shift is not just environmental but also a response to changing global demand. US OEM sales in China have plummeted— with General Motors, and Ford’s market shares dropping 20-percent, and 33-percent since 2021. General Motors has been particularly hard-hit, seeing its sales halved from 4 million units in 2017 to 2.1 million in 2023, causing significant financial losses across its operations. ?

In tandem with these market shifts, OEMs are increasing their sustainability requirements for suppliers. The Suppliers Partnership for the Environment , an organization focused on supporting sustainability in the automotive supply chain is helping to bridge the gap between OEM supplier sustainability requirements and supplier implementation. As one Tier I supplier executive noted, Tier I suppliers are asking for clearer guidance on what sustainability really means in practical terms. As one supplier executive put it, OEM demand for “improving sustainability 6 units” can be vague and often lacks the actionable clarity needed for supplier teams to transition targets into enabling the creation of actionable decarbonization plans . ?

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Transitioning from Targets to Action ?

Many Tier I suppliers are making corporate sustainability commitments to secure future business, but OEMs are struggling to translate these high-level decarbonization targets into practical, day-to-day operations. These targets often remain disconnected from routine business activities. ?

For instance, when choosing between traditional raw materials and more sustainable, recycled alternatives for an interior carpet part, OEMs often refuse to pay a premium for the eco-friendly option. This tension places the burden on suppliers to innovate within their value chains while maintaining competitive costs. ?

To meet these demands, suppliers must rethink their entire production and logistics systems. Developing new value chains, such as reverse logistics networks that collect and process waste materials like foam for reuse in new automotive parts, can drive both cost savings and sustainability improvements. A prime example of this is Lear's SoyFoam, an environmentally friendly, bio-based foam product made from soy-based polyols, which offers a more sustainable alternative to traditional petroleum-based foam. SoyFoam’s value chain is notably different—soy-based polyols derived from soybean oil replace a significant portion of the petroleum-based ingredients, reducing energy consumption by 60-percent and the carbon footprint by a factor of four compared to conventional foam. Notably, the reduced energy required to produce SoyFoam should lead to a more efficient cost structure for Lear's seating products. This reduction in energy consumption advances both the company's net-zero objectives and its profitability goals. ?

By embracing such innovative solutions, companies can not only meet sustainability goals but also develop more resilient and competitive business models. Suppliers that proactively pursue these value-added approaches will position themselves to secure new business opportunities and lead in the transition to a greener automotive industry. ?

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What’s Next for Automotive Supplier Sustainability? ?

The future of the automotive supply chain is clearly accelerating toward sustainability and local sourcing, but there are still hurdles to overcome. OEM sustainability teams often struggle to define clear, actionable targets, while suppliers find it difficult to integrate these objectives into their operations without cohesive guidance. As sustainability transitions from a buzzword to a business imperative, collaboration between OEMs and suppliers is essential to translate ambitious goals into practical, measurable outcomes. ?

The dual benefits of nearshoring—enhanced supply chain resilience and reduced environmental impact—are becoming increasingly apparent. This trend is set to gain momentum as companies recognize the opportunities for both profitability and sustainability. Being closer to OEMs also enables suppliers to explore innovative approaches to sustainability, such as using more sustainable materials and developing circular supply chains. ?

However, this transformation won’t happen overnight. Suppliers that embrace innovation and sustainability now will be the ones shaping the future of the industry, driving both long-term success and a greener bottom line. ?

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Interested in more automotive supplier sustainability insights? ?

Download our research report that incorporates over 100 data points from both public and private sources to analyze the top 300 automotive suppliers accelerating sustainable business. Within, you'll discover the top 25 suppliers, where efforts in emission reduction, sustainability initiatives, and profitability converge.? ?