OESA News - Second Quarter - Edition Two

NEWS Original Equipment Suppliers Association

ElectraMeccanica: A Matchmaker Event May 26, 2022

IN THIS ISSUE...

1 On Your Behalf: Leadership During Crises 2 U.S. Leading Indicators: Strong Fundamentals with Mixed Signals 4 Listen Now - Automotive Insiders Podcast 5 Peer Group Councils - OPMC

10 OESA Events 11 MEMA Spring into Advocacy Month 12 New OESA Members 13 OESA Event Calender

2022 Second Quarter │ Edition 2

Warner Legal Corner AUTOMOTIVE LEGAL TOPICS Volume Four, May 2022

New Sourcing Relationships Spur Suppliers to Revisit Supply Terms Many of Warner’s automotive supply clients are diversifying where they source product. Some are doing so in response to the sanctions levied against China and Russia, while others are creating supply redundancies to limit further disruptions in a volatile global market.

This trend has resulted in many clients entering into new sourcing relationships and re-evaluating how their supply contracts allocate risk. If you are contracting with a new source, below are some key considerations to keep in mind.

Make sure the new source and its suppliers have the same product supply obligations as you do. If you are required to supply your customers’ “requirements,” obligate your source and its suppliers to do the same. That includes your source and its suppliers – under any force majeure, contract termination or other provision – having the same obligations to supply product as you owe to your customer. Supply terms can also incentivize good performance.

Use your contract terms to add supply redundancies and transparency. Your terms can specify diversely located and preapproved alternative sources to cover for supply disruptions and provide for facility and document audits of your source and its suppliers to increase transparency and accountability within your supply chains.

Make sure any product warranty, indemnity and related provisions properly allocate risk. That includes allocating who is responsible for design, for recall/field service campaign expenses and for compliance with applicable laws and any third-party IP. The warranty should extend over your customer’s product life; and your terms can require your source to indemnify you and to carry sufficient insurance (including recall coverage), for all such risks.

Consider using a shorter initial term for your supply agreement to give you flexibility to pivot, if necessary.

For more information from Warner’s Automotive Industry Group, visit their webpage or log onto www.wnj.com.

Michael Brady

Partner mbrady@wnj.com 313.546.6032

Tom Manganello

ATTORNEY SPOTLIGHT Lance Zoerhof Lance Zoerhof is a litigator with over 20 years’ experience counseling auto suppliers on supply chain disputes and risk avoidance.

“The auto supply chain work has an added layer of complexity to it – unique to automotive,” he explains, “which I enjoy.” This experience is what Lance leans on to advise suppliers in the furniture, agricultural, home appliance, power tool and product fulfillment industries, among others – and helps them navigate similar issues, in addition to resolving disputes at trial or arbitration.

Lance works with clients at all levels of the supply chain, ranging from Tier 1 suppliers to tooling manufacturers, as well as aftermarket parts suppliers. And, his supply chain matters are regularly international in scope. “Often a client’s product will be sourced out of China, Taiwan, Mexico, Canada or some other international location, or some of the components of a product may come from outside the U.S.,” he explains. “This creates additional logistical and regulatory hoops to jump through as well as different procedural rules coming into play to resolve disputes within the supply chain.”

He goes on to explain that, “Right now, those sourcing overseas are also experiencing runaway demurrage, detention and other costs associated with delays. That has resulted in a dramatic increase in suppliers asking if these costs should be allocated within their supply chains.” Lance helps his suppliers proactively mitigate risks associated with these costs and represents suppliers in these types of disputes.

Additionally, determining where the product originates, in respect to tariffs, is another hot issue. Moving manufacturing processes from one country to another may be an appropriate response to increased tariffs. Those moves have resulted in suppliers entering into new relationships. And new relationships birth new risks that need to be properly assessed and allocated within the supply chain – Lance’s area of expertise.

Lance is recognized among Michigan Super Lawyers for Business Litigation. Check out Lance’s full bio here.

Partner tmanganello@wnj.com 313.546.6007

Elaine Taylor

Business Development etaylor@wnj.com 586.876.4045

Click here to access Warner’s Legal Corner Resource Page on OESA’s website.

On Your

Behalf

Leadership During Crises

As with many global issues, the automotive industry is feeling the impact of the Russian invasion on Ukraine. In the midst of this devastation, the overwhelming response from suppliers to find ways to support their employees – in both Ukraine and Russia – has been inspiring. The efforts to help a company’s global “family” demonstrate the commitment and respect for all people that makes me – and many others – proud to be part of the automotive community. Thank you to all the organizations finding ways to help in this time of need.

The next variant of coronavirus has also recently emerged. While current lockdowns appear to be limited to China, the impact on the supply chain is also being felt globally. Suppliers that operate in the North American region need to understand the potential impact on their organization and be prepared to manage through the global effect of the variant.

While there are many more global crises that can be listed, it is safe to say that the industry continues to cope with unprecedented issues that are causing significant disturbances in the supply base. Even during uncertain times such as these, I am always amazed at the extraordinary efforts of the global automotive supplier industry.

As the industry continues to navigate crises, the strength, fortitude, and leadership of the supplier community are on full display. Thank you for making a positive impact on the lives of the many people that depend on this industry.

As always, please feel free to contact me at 248.430.5963 or jfream@oesa.org.

Julie A. Fream President and CEO OESA

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LEADING INDICATORS

U.S. Leading Indicators: Strong Fundamentals with Mixed Signals Joe Zaciek Senior Manager, Research & Industry Analysis 248.430.5960 │ jzaciek@oesa.org

Leading economic indicators have been widely utilized for the monitoring of macro level business conditions, particularly within the automotive industry which not only contributes significantly to the indicators themselves but is strongly correlated with their readings. Data releases from the beginning of 2022 have wavered but have remained at strong fundamental levels. However, the details contained within these releases are far more concerning in comparison to the headline figures and are cause for concern as the automotive supply base continues to struggle with the residual impacts of the COVID-19 pandemic and semiconductor crisis. This article is aimed to enlighten the reader to the risk factors that are growing within the U.S. economy at a consumer, manufacturing, and financial level.

The U.S. consumer is experiencing the most unbalanced market since the great recession. The unemployment rate has reached pre-pandemic lows and initial claims for unemployment insurance has fallen to the lowest level since the Reagan Administration. The incredibly scarce labor market has driven average hourly earnings to the highest level in the series history , $31.73/hour up 6.6% YoY. Due to these circumstances, which in normal times would be a bull case for the automotive industry, inflation has risen to a 40-year high as firms adjust pricing to offset the high cost of labor and materials. Meanwhile, the price of retail gasoline has risen to over $4/gal ., weighing heavily on consumer sentiment which is hovering near great recession lows. Consumers are, on one hand, benefiting greatly from increased wages, low borrowing costs and rich portfolios. However, on the other hand, the price of everything is rising at an even faster rate, and a limited selection of goods available, namely autos, has caused a drastic drop in their confidence.

Headline data from the Board of Governors of the Federal Reserve System , U.S. Census Bureau , and ISM Manufacturing PMI , suggest that both industrial and manufacturing production is growing at a robust rate. In March, industrial and manufacturing production grew at a 5.5% and 5.2% year-overyear rate, respectively. March, new orders and shipments for CAPEX excluding aircraft is up 10.2% and 10.9% year over year, respectively. Additionally, the ISM Manufacturing PMI was 57.1 in March, extending its growth trend to 22 months but slowing slightly from February. However, delving into the details of the ISM report, we see a few areas of concern. Supplier deliveries continue to slow, the backlog of orders continue to grow, and price growth extended its 22-month trend and is accelerating.

These observations further exemplify the disruption of manufacturing supply chains. Additionally, the U.S. producer price index for final demand accelerated 0.9 ppts. from February to 11.2% year over year in March. Prices of inputs for stage 3 goods producers , a proxy for input costs at a tier 1 level, rose at a 25% year-over-year rate. These cost increases are easily covered for manufacturers that have autonomy in the price of the goods they are producing, but for automotive suppliers, whose prices were mostly set at period of price stability, the issue of recovery becomes increasingly complicated and, over the near-term, will need to be taken out of firm profitability. The robust demand for manufactured goods remains, for the time being, but the imbalances in supply chain efficiency, timing, cost etc. will eventually need to be corrected.

Financial conditions have also been deteriorating in since the beginning of the year. Major equity indexes are down markedly year to date, and year-over-year gains are hanging on by a thread . Additionally, the Federal Reserve hiked its policy rate in March, its first rate hike since the its 2 │ OESA News - 2022 Second Quarter

emergency measures of monetary stimulus were implemented at the onset of the pandemic. The Fed has also become increasingly hawkish in its stance on inflation since its March meeting. A Reuters survey of economists shows the expectation of two sequential 50 bps rate hikes at the next two Fed meetings is expected on average . This means that the cost of borrowing will increase for both firms and consumers and poses a substantial threat to new vehicle sales, especially with the product mix skewed to highest priced offerings. Lastly, the pulling ahead of the expected Fed tightening cycle, coupled with the onset of war in the Ukraine, raised the front end of the yield curve sharply, resulting in an inversion of the 10-2 spread on April 1, 2022 . Although an inverted yield curve is not directly linked with the onset of a recession, it has preceded the prior six, and has since caused economists to increase their estimated probability of a recession in the coming 12 months by 10 ppts. to 28% .

The automotive supply base has remained vigilant throughout the pandemic and met its customer demand in the face of countless disruptions. Business leaders must continue to push their teams through these challenges and be prepared for more to come. The U.S. economic fundamentals remain strong, but the imbalances are growing and carry the possibility of further disruption. Thorough monitoring of these leading indicators is paramount, so that business leaders can be prepared for what’s to come.

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U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred. stlouisfed.org/series/UNRATE, April 29, 2022.

U.S. Employment and Training Administration, Initial Claims [ICSA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred. stlouisfed.org/series/ICSA, April 29, 2022.

U.S. Bureau of Labor Statistics, Average Hourly Earnings of All Employees, Total Private [CES0500000003], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CES0500000003, April 29, 2022.

U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items in U.S. City Average [CPIAUCNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CPIAUCNS, April 29, 2022. https://www.eia.gov/dnav/pet/pet_pri_gnd_dcus_nus_w.htm http://www.sca.isr.umich.edu/ https://www.federalreserve.gov/releases/g17/current/ U.S. Census Bureau, Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft [NEWORDER], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/NEWORDER, April 29, 2022. https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/ https://www.bls.gov/news.release/pdf/ppi.pdf Bureau of Labor Statistics, Producer Price Index, See Technical Note Pg. 7. https://finance.yahoo.com/quote/%5EGSPC/ https://www.reuters.com/business/fed-raise-rates-aggressively-coming-months-say-economists-2022-04-11/ https://fred.stlouisfed.org/series/T10Y2Y

15. https://www.wsj.com/articles/recession-risk-is-rising-economists-say-11649592002?mod=article_inline

To learn more about economic and industry trends, contact Joe Zaciek , Senior Manager, Research and Industry Analysis, at jzaciek@oesa.org.

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AUTOMOTIVE INSIDERS...LISTEN NOW OESA and automotive industry expert Jason Stein have joined forces to present an all-new podcast focused on the automotive industry. The Automotive Insiders hosted by Jason Stein covers a broad-range of industry topics and trends that are impacting the future of automotive.

Jason interviews some of the industry’s key thought leaders and insiders. The podcast is available on Amazon Music, Apple Podcasts, Google Podcasts, iHeartRadio, Spotify, Stitcher, and Pandora. New episodes are featured weekly.

To subscribe and listen, click here.

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OESA PEER GROUP COUNCIL NETWORK

OESA Operations and Plant Managers Council Update Steve Horaney Vice President, Membership and Sales 248.430.5969│ shoraney@oesa.org

The Operations and Plant Managers Council (OPMC) is one of OESA's newest peer group councils. Launched in 2020, the virtual council was created to help automotive supplier operations leaders address issues of common concern and stay on-site. Once COVID hit, it seemed even more pertinent to keep these meetings virtual, giving plant managers and plant operations leaders more time in their manufacturing facilities.

OPMC's meetings address the concerns affecting the manufacturing environment. Council members hear from industry experts that have first-hand experience in manufacturing. The council welcomes senior operations managers from each supplier manufacturing location to join the council.

At the upcoming May 19th meeting, Joe Zaciek, senior manager, Research & Industry Analysis, OESA will discuss key survey findings and provide an economic and industry update. Members will also hear from Doug Olander, managing director advisory and Kristine Coogan, managing director advisory, KPMG. Olander and Coogan will address how a data-driven approach to sourcing labor can be implimented to promote the sourcing and retention of labor.

If you or one of your operations leaders are interested in learning more about the Operations and Plant Managers Council, please reach out to Steve Horaney at shoraney@oesa.org or Erin Schriber at eschrieber@oesa.org.

Learn more about all OESA Peer Group Councils at oesa.org/councils-and-committees.

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OESA EVENTS

Strategic Insights Executive Series: EV Sector Learning: Driving Momentum and Scale

May 5 | 8:30 - 11:00 a.m. | OESA Conference Center, Southfield, MI and virtually via Zoom OESA invites industry and strategy professionals to attend the 2022 Strategic Insights Executive Series: EV Sector Learning - Driving Momentum and Scale on May 5, 2022. This event is the second of two executive briefings addressing actionable insights in electrification and the EV sector. It will be presented in person at the OESA Conference Center in Southfield, MI and via Zoom.

The Series discusses the dramatic pace of industry change, technology advancement, sales volatility, and production sourcing dynamics. Attendees will gain intelligence from industry experts within forecasting, consumer & product research, leading automakers, and premier industry consultants.

Ben Lundin, Senior Insights Manager, Automotive and Mobility, Escalent, will share detailed EVfocused research linking buyer attitudes & behavior, technology adoption and purchase drivers to help suppliers and automakers learn from early efforts to inform and accelerate processes to add even greater value.

Experts from Deloitte Jason Coffman, U.S. Automotive Consulting Leader, Deloitte Consulting LLP, Ryan Robinson, Automotive Research Leader, Deloitte LLP, Ashok Divakaran, Connected Autonomous Vehicle Leader, Deloitte Consulting LLP, and Vaidyanathan Anantharaman, Supply Chain and Engineering Service Specialist Leader, Deloitte Consulting, LLP, will share insights from its latest global consumer survey on BEVs. Learn how software-defined vehicle momentum is building upon electrification efforts to meet consumer expectations.

Attendees will also hear from a leading OEM on how new approaches to identify consumer needs and foster supplier collaboration have helped achieve product breakthroughs, elevate user experience, and enhance customer value.

Event Sponsors:

OESA members and industry guests may register for OESA events at www.oesa.org.

For registration assistance, contact OESA at 248.952.6401 or info@oesa.org.

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OESA EVENTS

South Carolina Regional Supplier Meeting

May 12 | 11:45 a.m. - 4:30 p.m. | CU-ICAR - Greenville S.C. The Original Equipment Suppliers Association (OESA) and South Carolina Automotive Council (SCAC) invite suppliers and industry guests to attend the OESA /SCAC 2022 South Carolina Regional Supplier Meeting on May 12, 2022. The event will be held at the Clemson University International Center for Automotive Research (CU-ICAR) in Greenville, S.C. Attendees will hear the industry’s latest trends, decisions and events that are making a direct impact on the North American light vehicle industry. Topics include the automotive outlook, disruptions in the supply chain, labor and workforce issues, legislative and regulatory issues in Washington, D.C, as well as insights from Volvo Car USA’s South Carolina operations.

Catherine Boland, vice president, legislative affairs, Motor & Equipment Manufacturers Association (MEMA), will provide an update on issues impacting suppliers in Washington, D.C. Topics will include an update on the semiconductor shortage, shipping port delays, and the recent decisions on Capitol Hill.

Zainab Hazimi, associate, Warner Norcross + Judd, will address the mounting workforce challenges for employers and HR professionals as their personnel return to in-person work, as well as implications of workplace safety, vaccine mandates, employee leave issues and some recent employment litigation trends.

Katie Pullen, partner, Warner Norcross + Judd, will share best practices and strategies for dealing with the ongoing supply chain strains including price increase demands, component and raw material shortages, shipping issues, commercial impracticability claims, volume shortages, ever-changing production schedules and preliminary injunction threats.

Joe McCabe, president, AutoForecast Solutions, will share the latest AFS production outlook as well as discuss the industry transition from ICE to BEV. The day will conclude with an update from Todd Brower, head of Procurement, VOLVO CAR USA. He will share his insight on the industry’s landscape and Volvo’s sourcing needs and plans for the future.

Presenting Sponsor:

Lunch Sponsor

Event Partners

Coffee Connections Sponsors

Silver Sponsor

Sustaining Sponsor

Alliance Partners

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OESA EVENTS

OESA Advocacy Day: The Administration and the Automotive Supply Chain May 18 | 10:00 a.m. - 12:00 p.m. | Virtually via Zoom

The Original Equipment Suppliers Association (OESA), in cooperation with the Motor & Equipment Manufacturers Association (MEMA), is pleased to announce OESA Advocacy Day: The Administration and the Automotive Supply Chain on May 18, 2022. This is a virtual meeting presented via Zoom.

A senior official from the U.S. Secretary of Commerce, Department of Commerce (DOC) will provide an overview of the political issues that are impacting the automotive supply chain. Julie A. Fream, President and CEO, OESA will facilitate a Q&A session.

Following, a panel of industry thought leaders will share their reactions to DOC’s comments and give their perspectives on supply chain disruptions, such as port delays, semiconductor shortages and what’s next for the industry. Panelists will also address questions from attendees.

Panelists include: •

Mario Cordero, Executive Director, Port of Long Beach

•

David Issacs, VP, Government Affairs, Semiconductor Industry Association

•

Ana Meuwissen, Director, Robert Bosch

•

Governor Matt Blunt, President, American Automotive Policy Council and former Governor of Missouri

This event is part of MEMA’s Spring Into Advocacy month. It features a series of events focused on a wide array of policy discussions on the environment and emissions, trade, vehicle safety, and workforce development, and a focus on the midterm election. The goal is to provide suppliers with the tools necessary to understand and participate in government affairs.

This is a free event for members of AASA, HDMA, MERA, and OESA.

OESA members and industry guests may register for OESA events at www.oesa.org.

For registration assistance, contact OESA at 248.952.6401 or info@oesa.org.

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OESA EVENTS

OESA/SAA 13th Annual Purchasing Summit

May 24 | 8:00 a.m. - 12:00 p.m. | Marelli North America Inc - Southfield, MI and virtually via Zoom The Original Equipment Suppliers Association (OESA) and the Society of Automotive Analysts (SAA), in cooperation with Plante Moran, will present the OESA / SAA 2022 13th Annual Purchasing Summit on May 24, 2022. This event is hosted by Marelli.

Leaders from Plante Moran will share key highlights from the latest Plante Moran North American Automotive OEM-Supplier Working Relations Index® (WRI®) Study. Following, purchasing executives from Ford, GM, Honda, Nissan, and Toyota will provide commentary on the study results and answer questions from event participants.

Attendees will learn: •

How the industry crises of 2021 tested OEM and supplier relations

•

Which OEMs were favored by suppliers in managing through these crises

•

Which OEMs improved as the suppliers' customer of choice

•

How accelerated electrification product plans inject risk in commercial relations and supplier responses

•

How supplier relations impact OEM and supplier bottom lines

Following the panel, in-person attendees will have the opportunity to network with OEM purchasing executives in attendance.

Presenting Sponsors:

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OESA EVENTS

ElectraMeccanica: A Matchmaker Event

May 26 | 8:00 a.m. - 12:30 p.m. | Sheraton Detroit, Novi OESA is pleased to announce an exclusive opportunity for members to gain direct access to a new EV player that is interested in sourcing parts produced in North America, Electrameccanica (EMV).

The all-new ElectraMeccanica: Matchmaker Event, hosted by OESA, will be held in-person on Thursday, May 26, 2022 at the Sheraton Detroit Novi in Novi, Mich.

Leaders from ElectraMeccanica’s purchasing, engineering and supplier quality teams will give OESA members an exclusive opportunity to learn about its company vision; production plans, volumes and timelines; manufacturing locations and supplier sourcing opportunities.

OESA is committed to fostering relationships between suppliers and OEM manufacturers to further advance vehicle innovation throughout the North American supply chain. Sourcing opportunities are available in the following categories: Battery Systems, Chassis, Electronics, Powertrain and Thermal.

Click here for the full list of commodities.

This exclusive members-only event will feature the following presentations: •

A Vision of Solo – and why it matters in the EV space Kim Brink, Chief Revenue Officer, EMV

•

The Purchasing Vision Brent Jump, VP Purchasing & Supplier Quality, EMV

•

EMV Manufacturing Plans Joe Mitchell, COO, EMV

•

Solo – The Technical Details Ray VanAssche, VP Engineering, EMV

Following the presentations, Julie A. Fream, President and CEO, OESA will facilitate a Q&A session with questions from attendees. One-on-one networking will follow the program.

OESA members and industry guests may register for OESA events at www.oesa.org.

For registration assistance, contact OESA at 248.952.6401 or info@oesa.org.

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MEMA SPRING INTO ADVOCACY

MEMA is excited to announce its month-long Spring Into Advocacy event, during the entire month of May. Spring Into Advocacy events focus on a wide array of topics including policy discussions on the environment and emissions, trade, vehicle safety, and workforce development, political discussions with a focus on the midterm election, and much more! Our goal is to provide you with the tools necessary to understand and participate in government affairs. We look forward to continuing to provide excellent service and opportunities to our members, and the chance to grow together in advocacy.

We are also delighted to announce this year’s event will include an in-person component from May 10th-11th, for guests who register for the fly-in week. This two day event will include amazing opportunities for professional networking, advocating policy on Capitol Hill, and multiple chances to hear from leading experts on a variety of topics that will help inform you of important policy decisions that could impact your organization.

For more information and to register for this event, click here.

For any additional questions on registering for the Spring Into Advocacy events, please contact Joshua McGuire at jmcguire@mema.org.

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OESA MEMBERSHIP Autaza

CMB Automotive Marketing Ltd.

Member Representative: Michael Magdich, Vice-President Alternate Representative: Renan Padovani, CEO

Member Representative: Chris Bowers, CEO Alternate Representative: Emily Philips – Marketing Director

Innoviz Technologies

Luxit Group

Member Representative: Scott Craig, VP Sales, North America Alternate Representative: Katherine Teresi, Office & Sales Operations Manager

Member Representative: Stephane Vedie, CEO Alternate Representative: Scott Colbert, CFO

Novelis Corporation

Okaya USA, Inc.

Member Representative: Brad Peterson, Director of Sales, NA Alternate Representative: Andrea Anderson, Office Manager

Member Representative: Naoya Tsukiyama, Sales Manager Alternate Representative: Tomoharu Iguchi, General Manager

Schaltbau North America

ZYNP International Corporation

Member Representative: Carolyn Sauer, Director, Business Development Alternate Representative: Jim Tullo, President

Member Representative: Robert Evanski, Senior Sales Manager Alternate Representative: Tom Crowley, COO

330 East Liberty St. Ann Arbor, MI 48104 www.autaza.com

220 South Main Street Royal Oak, MI 48067 www.cmbautomotive.com

1102 Walsh Ave. Santa Clara, CA 95050 www.innoviz.tech

37000 Grand River Ave. Suite 220 Farmington Hills, MI 48335 www.luxitgroup.com

39700 MacKenzie Dr., Suite 200 Novi, Michigan 48377 www.novelis.com

225 Oser Avenue Hauppauge, NY 11788 www.schaltbau.com

64 West Seegers Road Arlington Heights, IL 60005 www.okaya-usa.com

27501 Hildebrandt Rd. #300 Romulus, MI 48174 www.zynpusa.com

For OESA membership information, contact:

Steve Horaney Vice President, Membership and Sales 248.430.5969 shoraney@oesa.org

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Erin Schrieber Senior Manager, Membership Recruitment and Development 248.430.5970 eschrieber@oesa.org

Adam Slaman Senior Manager, Sponsorship Sales and Membership Development 248.430.5958 aslaman@oesa.org

OESA EVENTS Upcoming OESA Events: May 5

Strategic Insights Executive Series: EV Sector Learning: Driving Momentum and Scale

May 12

South Carolina Regional Supplier Meeting

May 18

OESA Advocacy Day: The Administration and the Automotive Supply Chain

May 24

13th Annual Purchasing Summit

May 26

ElectraMeccanica: A Matchmaker Event

Upcoming 2022 OESA Town Hall Meetings

Mark your calendar for the Members-Only OEM Town Hall Meetings

May 26

ElectraMeccanica: A Matchmaker Event

July 27

Toyota Town Hall

Sept. 20

Honda Town Hall

Nov. 29

Volkswagen Town Hall

Nov. 29

Ford Town Hall

Upcoming Council Meetings: May 10

Environment, Health, Safety, and Sustainability Council

May 12

Young Leadership Council Alumni

May 18

Operations and Plant Managers Council

Jun. 2

Sales Executive Council

OESA News - 2022 Second Quarter

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Insight from the McDonald Hopkins Automotive Practice Group

Ransomware’s devestating impact on manufacturers and supply chain

For one day in March, Toyota shut down operations at 14 plants to address cybersecurity concerns that had impacted its suppliers. Two suppliers were later identified as victims of ransomware attacks. According to CNN, the suspension in production impacted approximately 13,000 vehicles.

A ransomware infection uses malware to lock files and systems using complicated encryption. The criminals who perpetrate these attacks then demand a ransom payment in exchange for the key to decrypt those files and systems. A hallmark of recent ransomware attacks is the theft of data by the perpetrators prior to deployment of the ransomware executable. This action gives the threat actors two potential avenues to a payday – forcing the victim to make a payment to receive the decryption key to unlock files, or forcing the victim to make a payment in exchange for the return of, or promise to delete, sensitive or proprietary data that was stolen from the network.

The attack on Toyota’s suppliers, which led to a halt in production, is a perfect example of the catastrophic impact of ransomware on industries that rely upon the supply chain. When the computers that run assembly lines or other equipment are hit with a ransomware attack, those machines have to be taken offline. When production is halted as the ransomware incident plays out, the problems begin to snowball. A ransomware incident not only makes it difficult for a manufacturer to move forward to the end product or maintain a production schedule, it also costs time and money for second tier manufacturers and those further down the supply chain. If the supplier is the victim, the upstream manufacturers may have to slow or halt production as they wait for essential parts.

In addition to business interruption and the significant costs of production machines sitting idle, an additional risk of a ransomware attack is the incident will require reporting to regulators and notification to impacted individuals. Costs can include credit monitoring services, a call center to answer questions, and the potential for lost business or a damaged reputation when notifications are mailed.

Other recent challenges in the automotive space and the war in Ukraine and accompanying geopolitical crises have stoked fear to a threat level that was already on

By Christine N. Czuprynski

McDonald Hopkins PLC Member, Data Privacy and Cybersecurity Practice Group

high alert. The reality has long been that businesses and governments in the United States and around the world should know that being victimized by cyber threats is a question of “when,” not “if,” and plan accordingly.

Recent occurrences in the first quarter 2022 have highlighted the need to evaluate and plan for very real cybersecurity risks.

There are steps businesses can take to minimize the risk and impact of an incident like a ransomware attack, which could very easily end up being a reportable “data breach.” Businesses are encouraged to conduct a data inventory – what is collected and where is it stored?

Who has access to data and how is it transmitted? Where are back-ups? On the IT side, data should be securely removed from old systems and servers, and those legacy

devices decommissioned. Remaining systems need to be kept up-to-date and patched completely and consistently.

Importantly, do not delay implementation of multi-factor authentication.

Reasonable data security requires a suite of plans, programs, policies, and procedures. A comprehensive written information security program is an internal written policy that governs how a company maintains, secures, and disposes of sensitive data, trains employees on information security, and remediates information security risks. An incident response plan identifies the appropriate internal and external resources to properly deal with an incident that legally becomes a reportable data breach, and provides step-by-step instructions for identifying, mitigating, responding to, reporting, and closing an incident. Internal policies relating to access controls, password management, avoiding phishing, and using encryption and other secure transmission should be implemented and updated. These policies should be created, implemented and maintained as part of a comprehensive plan for data privacy and cybersecurity preparedness.

mcdonaldhopkins.com 39533 Woodward Avenue, Suite 318, Bloomfield Hills, Michigan 48304 This content (©2022 McDonald Hopkins PLC All Rights Reserved) is designed to provide current information regarding important legal developments. The foregoing discussion is general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action. This material is not intended to create, and your receipt of it does not constitute, an attorney-client relationship with McDonald Hopkins.

Original Equipment Suppliers Association 25925 Telegraph Rd., Ste. 350 │Southfield, MI 48033-2553 248.952.6401 │oesa.org │info@oesa.org Connect with us on OESA News is provided by the OESA Communications Team.

April Buford Executive Director, Marketing & Communications 248.430.5964 abuford@oesa.org

Abby Napier Communications Specialist 248.430.5957 anapier@oesa.org