Due diligence on an automotive parts manufacturer

Once an automotive parts manufacturer is under a letter of intent, diligence is where a buyer confirms whether the business actually matches the listing. Beyond the standard review of financial statements and contracts, this sub-sector has three verification points that carry outsized weight: whether program agreements transfer the way the seller describes, whether the tooling schedule holds up to scrutiny, and whether warranty and recall exposure is quantified rather than assumed away. Each has a specific way to check it, and each has a specific finding that should change how a buyer proceeds.

Verify program agreements at the source

Request the full agreement, not a summary, and confirm any change-of-control or consent provisions directly against the document. Where possible, corroborate directly with the OEM’s supplier-relations contact rather than relying solely on the seller’s account of how the relationship will treat a change of ownership.

Confirm the tooling schedule item by item

Cross-check the seller’s tooling schedule against maintenance and bailment records rather than accepting it at face value. Equipment presented as company-owned that turns out to be OEM-titled changes both the asset value of the deal and the buyer’s post-closing obligations, and this is one of the more common gaps between what a listing implies and what a shop actually owns.

Quantify warranty and recall exposure, don’t just ask about it

Request the actual claims history and the seller’s reserve methodology rather than a verbal assurance that nothing is outstanding. Exposure on parts already in vehicles on the road can surface years after a sale, so the historical pattern matters more here than a point-in-time confirmation.

Search for judgments, executions and CRA debts against the entity

An execution or judgment search against the corporate entity, confirmation of good standing, and a check for outstanding Canada Revenue Agency debts are basic diligence steps for any business purchase, and they matter here because an undisclosed lien or judgment can complicate financing against the very equipment a lender is counting on as collateral. Search the applicable court and personal property registries for registered judgments, confirm the corporation’s standing with its governing jurisdiction, and request written confirmation of outstanding CRA balances rather than accepting the seller’s assurance. None of this is specific to automotive suppliers, but a supplier already financing tooling and equipment through more than one lender has less room to absorb an unexpected claim than a business with a simpler capital structure.

Verify the collective agreement and grievance history directly

Where the plant is unionized, request the full collective agreement rather than a summary, along with its expiry date, recent grievance filings and any outstanding arbitration decisions. Confirm directly — ideally with labour counsel — which successor-employer obligations actually apply given the transaction structure and the province the plant operates in, since this is not a question a buyer should answer from general assumption. A pattern of frequent grievances or an agreement approaching expiry with contentious issues outstanding is a materially different finding from a clean history and a mid-term agreement, and it belongs in how the buyer models both cost and integration risk going forward.

Confirm tooling condition against maintenance records, not the schedule alone

A tooling schedule shows what is company-owned and what is OEM-owned, but it says nothing about condition. Cross-check maintenance logs and any OEM capital-investment notices against the equipment itself, since a program can require tooling upgrades that have not yet been formally communicated in writing but are already known informally to the OEM’s supplier-quality contact. Match recent capital additions on the fixed-asset ledger against actual purchase orders and invoices rather than accepting the balance-sheet total, since equipment recorded as installed but not yet matched to a corresponding invoice is a common source of overstated tooling value. A buyer who verifies this directly with the OEM, rather than relying on the seller’s account of the relationship, gets a materially more reliable picture of what capital commitment is actually coming than the maintenance log alone would suggest.

Check the price-down schedule against current margin

Committed OEM annual price-down requirements already agreed in existing contracts can make a program materially less profitable going forward than trailing financials suggest. Model the forward margin against the actual committed schedule, not against last year’s numbers, before relying on the seller’s stated profitability.

Check environmental exposure from painting, plating and solvent use

Many automotive parts processes rely on regulated chemicals, and the environmental exposure they create does not disappear with a change of ownership. In Ontario, review Environmental Compliance Approval status and any record of site condition; other provinces run their own permitting regimes, so confirm the equivalent locally rather than assuming Ontario’s framework applies elsewhere.

Know what a finding actually means before reacting to it

An OEM confirming it may re-source a program following a change of ownership is a closing-condition and pricing problem to be addressed through the purchase agreement, not automatically a reason to walk away. A poor quality or delivery scorecard often means the account is on a defined improvement plan a buyer can evaluate directly. Undisclosed warranty or recall exposure that only surfaces during diligence is the most serious of the three, because it suggests the seller’s own records may not be fully reliable elsewhere either.