Allen Eden runs a 25-person business in Britt, Iowa, called Original Saw Co., making industrial power saws for wood and metalwork. He has been holding extra inventory as prices for aluminium, steel and essential parts spike.
It’s awful, he told CNBC. I’m just trying to keep more of the stuff around because I don’t know if we can get it down the road.
That sentence describes the whole of American industrial commerce this month, and CNBC’s framing of it is the most useful piece of reporting this week because it names the structure rather than the symptoms.
It is a three-way squeeze. Tariffs make raw materials and goods more expensive. Higher fuel prices push up the cost of making and moving them. And rising rates make it more expensive to finance the inventory and equipment needed to keep running.
Each of those on its own is a normal business problem with a normal business answer. You reprice, you renegotiate, you order differently. What makes this different is that the three answers contradict each other.
Tariffs and shortage risk say hold more stock. Interest rates say hold less, because inventory is financed and financing got dearer. Fuel costs say move less often in bigger loads, which means holding more stock. So the correct response to two of the pressures makes the third one worse, and there is no configuration that solves all three.
That is why the word absorb keeps appearing. Paul McCarthy of the vehicle supplier association MEMA put it plainly: there is no doubt there is margin pressure for suppliers, some of it we try to absorb, and then some of it does have to be passed on.
The numbers show where it lands. Earnings before interest and taxes for the top 100 auto suppliers fell last year to 4.2 percent, down from more than six percent in 2021. Among the top ten automakers the figure is 5.2 percent, down from nearly eight in 2022. Lucerne International, a privately held parts maker near Detroit, stopped manufacturing in the United States and cancelled a $50 million aluminium forging plant in Michigan, pivoting instead into warehousing, distribution and tariff-mitigation services for other companies, which offer better margins.
Gregory Daco of EY-Parthenon named the exposure precisely: the combination of higher rates and higher fuel prices means sectors with heavy exposure to both are first in the line of fire, and any type of manufacturing is disproportionately exposed to fuel.
Smaller companies feel the rate move fastest because they tend to carry short-duration debt, so Fed decisions translate into their borrowing costs almost immediately. JPMorgan’s Lakos-Bujas puts the point at which larger firms start hurting at a ten-year yield of six percent, against around five now, citing eighty years of data.
The division CNBC identifies is the one every operator should locate themselves within. Companies that can pass costs to customers are positioned. Companies facing price-sensitive buyers risk losing demand if they move too far.
Lucerne’s answer is the interesting one. It stopped making the thing and started selling the solution to the problem that stopped it.
Three pressures. Two of the correct responses cancel each other.
