DETROIT -- After years of education and preparation, the automotive industry has begun to identify whether certain metals from nine African countries exist in the supply chain.
Section 1502 of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, finalized in August 2012, requires public companies to disclose whether they use "conflict minerals" -- tin, tungsten, tantalum and gold -- from the Democratic Republic of Congo and eight other African countries that are said to fund violence.
Although the intent of the rule is to limit the funding of armed conflicts in the Congo region by no longer sourcing from militant-controlled mines, executing it requires a new level of understanding the supply chain, experts say.
All companies registered with the U.S. Securities and Exchange Commission are required to establish reporting processes by May 31, and it has been a struggle, said Aaron Sikora, automotive partner at PricewaterhouseCoopers LLP in Detroit.
"Whether the metals in the supply chain are coming from the conflicted region of the world is still a big unknown at this point," Sikora said. "The information that is available coming from the mine and where the minerals are originating from is still unreliable, and it's created a lot of challenges."
Then there is cost. The SEC predicts roughly 6,000 registered companies are affected by the rules, but that will trickle down to tens of thousands more private companies that may or may not use minerals from Africa.
The initial cost of compliance for U.S. companies is estimated at $3 billion to $4 billion, with ongoing compliance costing between $206 million and $609 million, according to the SEC. But the National Association of Manufacturers says the costs will be much higher -- $9 billion to $16 billion.
The compliance costs have drawn the ire of several organizations.
The U.S. Chamber of Commerce, NAM and the Business Roundtable filed a lawsuit against the SEC claiming the ruling was too costly and violated the companies' First Amendment rights of free speech. However, a federal court judge ruled in favor of the SEC in July.
Several law firms and industry action groups have sent letters to the SEC asking for more time to adhere to the ruling, including a Sept. 11 letter from Atlanta-based Troutman Sanders LLP.
State action
The Detroit Regional Chamber, in a draft of a letter obtained by Crain's Detroit Business, an affiliate of Automotive News, may ask the Michigan Legislature to issue a resolution to appeal the rule.
The letter says, "Michigan's auto-related manufacturing companies, and the Detroit Regional Chamber, believe that these new reporting requirements are much too strenuous and costly."
However, the auto industry is pushing forward with establishing reporting processes ahead of the deadline and is finding ways to proceed despite the difficult and expensive task, experts say.
"Progress is slower than people had hoped for and is proving more difficult than anticipated, but the industry is making an effort," said Sam Fogelman, risk consulting partner at KPMG LLP in Detroit.
Prevalence of minerals
A large issue is the prevalence of the minerals, conflict or not, in the industry, Sikora said.
"It was surprising how many parts contain these minerals," Sikora said. "They are in things most people wouldn't expect, and this is really causing a need for the supply chain to get into the data and reach out to suppliers."
Tin, tungsten, tantalum and gold, or 3TGs, are found in many automotive products, including fuel tanks, seat cushions, batteries, brake pads, radiators, sealants, glass and electronics, according a study by the Automotive Industry Action Group in suburban Detroit.
This year, AIAG launched a Web-based data management tool, iPoint Conflict Minerals Platform, to help companies gather, assess and report information about their supply chain.
The support group is offering the tool for $720 annually to its members and is training up to 30 auto industry representatives a month on the program, said Tanya Bolden, AIAG manager of corporate responsibility program development.
"Companies are beginning to establish their internal process, and we're seeing this issue and procedures maturing," Bolden said. "We have such a complex supply chain and just trying to reach the various levels of that chain is difficult without a process like iPoint."
Ford supplier efforts
Ford Motor Co. uses iPoint and is distributing the reporting template to its supply base, spokeswoman Kristina Adamski wrote in an emailed statement to Crain's.
"The mandated reporting and collection process has been a significant challenge for our supply partners since, in order to be successful, we require the support and cooperation of suppliers throughout our value chain," Adamski wrote in the email.
"Since the SEC legislation is very complex and requires a fair amount of education and cooperation throughout the value chain, Ford has been working hard to educate our suppliers about the legislation and create a streamlined cross-industry process for data collection."
Fogelman said many in the industry are using the efforts to comply with the rule as a framework for increased sustainability efforts.
"I urge companies not to treat these programs as silos; think about all of your compliance efforts in the context of sustainability," Fogelman said. "This is an opportunity to understand and optimize your supply chain across the board."
Finding an edge?
Gerrit Reepmeyer, director of energy and utilities for Russian-owned Severstal North America, said the steelmaker views the challenge to differentiate itself.
"We believe focusing on this effort will give us a commercial edge in the industry," Reepmeyer said. "That's why we've taken steps in recent months as a proactive tool in the way we do sourcing."
In May, Severstal submitted a 46-question survey to its more than 2,500 suppliers on not only conflict minerals but also working conditions, safety compliance and other human rights issues.
Reepmeyer said the company is focused on ensuring that suppliers abide by international labor laws, environmental and safety standards as well as business ethics.
"We want to make sure we only engage with customers and suppliers with integrity," he said.
Severstal completed its assessment of conflict minerals within its supply base in May. Reepmeyer said the company identified two suppliers that may have sourced from the Congo region, but after further investigation, Severstal ruled them to be conflict-free.
"In the future, this whole issue of sustainability will become broader and broader," he said. "This is why we took a proactive approach, to meet any new criteria coming up. We only see this as the beginning of sustainability" regulations.
