Auto Suppliers Will Get Squeezed to Offset Higher Costs from USMCA, Survey Says

Date: January 9, 2019
Source: Automotive News
MEMA Industry News Editor’s Note: MEMA has vocally opposed a wide range of tariffs that impact the motor vehicle parts industry. Detailed information about proposed and applied tariffs as well as other recent trade actions can be found on the MEMA Trade Resources Page. For more information about MEMA’s trade positions, contact Catherine Boland.
More than a third of automotive executives in a recent survey said they plan to renegotiate contracts with suppliers and aggressively seek production savings to counter higher costs expected under the proposed U.S.-Mexico-Canada Agreement.
Participants indicated they feel under pressure to source more components from suppliers near North American assembly plants, with 61 percent predicting that suppliers located near production sites will be favored. And 73 percent stated they expect payroll costs to grow unless they cut their workforce.
The survey of 100 U.S-based auto executives was conducted online in December by market research firm Propeller Insights for LevaData, a strategic sourcing and procurement consultancy based in San Jose, Calif., that uses predictive analytics to reduce supply chain costs.
The USMCA trade agreement, which must still be approved by the three nations’ legislative bodies, calls for at least 70 percent of a car’s steel and 75 percent of its total content to be manufactured in North America to qualify for duty-free treatment when crossing one of the borders. Additionally, at least 40 percent of a vehicle’s content must be made by workers earning $16 per hour or more. The rules of origin under the existing North American Free Trade Agreement require 62.5 percent regional content, and there is no requirement for labor value content.
Forty-one percent of survey participants believe production costs will increase by 10 percent over the next three years and a quarter believe the increase could be 25 percent or more, with more than half agreeing the changes will result in higher costs for consumers. Electronic components, which make up a growing share of a vehicles’ overall cost, were singled out as the area most likely to experience cost increases.
Nearly 80 percent of the industrialists said supply chain changes required by the NAFTA rewrite will have a positive impact on their company over time, and more than half (53 percent) feel USMCA will ultimately increase North American vehicle manufacturing and provide a net improvement for workers and consumers.
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