Trump administration demands in NAFTA trade negotiations meant to push automotive jobs back to the US may not be enough to spark a shift in where automakers build cars and trucks, a Reuters investigation has concluded.
Industry executives and supply chain experts have told the news agency new calculations to determine what qualifies as vehicle content, what limits apply to allow tariff-free vehicle imports and how long companies would have to comply under a new NAFTA agreement would likely not change things for Detroit automakers in particular.
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Automakers are unlikely to uproot billions of dollars of investments in plants and supply chains and those that cannot comply with standards for passenger cars could simply pay tariffs of around US$800 to $900 per vehicle and buy low cost parts from Asia to offset the cost, industry experts told Reuters.
"Broadly speaking the (tariff) increase isn't big enough to make a wholesale change," Mark Wakefield, head of the North American automotive practice for consultancy AlixPartners, told the news agency.
"No one is likely to shut down an active factory in Mexico and build a new one to replace that in the US."
Tough U.S. proposals on autos are meant to bring back U.S. manufacturing jobs and central to the Trump administration's approach to renegotiating the North American Free Trade Agreement between Canada, Mexico and the United States.
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By GlobalDataA source told Reuters General Motors, soon to be the only Detroit Three automaker building pickup trucks in Mexico, was confident it could comply with content requirements for trucks the US proposes without shifting production.
The Mexican-made trucks already have a significant share of their value, such as engines, produced in the US at United Auto Workers union-represented factories and GM would get another boost if it was allowed to factor in engineering done in Michigan.
GM is retooling a high-volume factory to build a new generation of large Chevrolet and GMC pickups in Silao, Mexico. Pickup trucks that do not have enough US or North American content under NAFTA rules could be hit with a crippling 25% tariff, Reuters noted.
Silao built 400,000 units or over 40% of GM's 2017 US pickup truck sales last year.
Fiat Chrysler Automobiles Chief Executive Sergio Marchionne said on Friday a revised treaty could prompt FCA to "redirect" some Mexican production but would not cause it to further dial back its presence in Mexico.
In January FCA had said it would shift production of heavy duty pickup trucks from Mexico to Michigan in 2020 to reduce the profit risks should the US pull out of NAFTA, Reuters noted.
Senior US, Canadian and Mexican officials on Friday ended a week of talks without a deal to modernise NAFTA, agreeing instead to resume negotiations soon, ahead of a deadline next week.
The US wants 40% of the value of light duty passenger vehicles and 45% of a truck's content to be built at hourly wages of $16 to qualify for tariff-free import from Mexico. Those demands are aimed at preserving relatively higher wage US and Canadian production and pressuring Mexico's low auto wages. Mexico wants 70% of a vehicle's content to be made within North America, less than the 75% US negotiators propose.
Automakers that do not comply with tougher US or North American content and wage rules, if adopted, could face 2.5% tariffs on cars or sport utility vehicles shipped to the US from Mexico.
That, Reuters concluded, may be a level of pain they can live with.
