Technology’s Effect on Global Automotive Supply Chains

Foley & Lardner LLP

Foley & Lardner LLPLike it has for many industries, technology is changing the game for the automotive sector – and the effects are now being felt down companies’ supply chains. As the intense focus on autonomous vehicles and electrification shows no signs of abating, automotive companies have a lot to think about as 2020 unfolds.

Warranty issues should top that list. The shift from human drivers to some level of autonomous driving means companies must rethink how they deal with warranty risks, beginning at the contracting phase. It is also crucial that all involved parties clearly document their responsibilities for testing systems. It is vital to establish the limits of these responsibilities at the component, system, and vehicle level.

At the same time, licensing strategies must evolve -- even as OEMs have the opportunity to lower intellectual property costs -- and the advent of smart technology means vehicles will collect more personal data, requiring strong data protection policies. The global automotive cybersecurity market is expected to grow at an unprecedented rate. It has never been more important to develop robust cybersecurity policies in connection with the design goals of the products. Breach of applicable agreements, documentation of root cause(s) and documentary evidence supporting the damages are critical should litigation arise in the event of a malicious attack.

Finally, automotive companies are not immune from fluctuating commodities markets, international trade issues and government regulations involving new technologies. According to the Electronic Components Industry Association: “…The imposition of tariffs on electronic components will have global consequences for businesses and consumers alike, adding friction and costs to the supply chain that can hinder economic growth for all involved.”1 Looking forward, automotive companies have a number of avenues they can pursue to shift tariff risk. For example, parties to a supply contract may specifically assign the tariff risk to the seller, by listing the price as inclusive of all “taxes, imports, duties, and tariffs.” Alternatively, the parties to a supply contract may simply require the buyer to pay any tariffs. Other supply chain contracts may include a more open-ended pricing provision, which requires the parties to engage in good faith negotiations regarding price increases if tariffs are imposed.

For more detail on how emerging technologies are impacting global automotive supply chains, head over to Foley’s white paper on the “Top Legal Issues Facing the Automotive Industry in 2020.”


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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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