As the sixth round of talks to renegotiate the North American Free Trade Agreement (Nafta) got underway in Montreal, Canada, this week, a number of OEMs and advocacy groups with links to the automotive industry have urged politicians to proceed with caution.
Carmakers have begun to hedge their bets as negotiations continue and tensions rise, according to analyst firm PwC Autofacts – as was seen last week when Fiat Chrysler Automobiles announced at the Detroit Auto Show that it was shifting Ram truck production from its Saltillo plant in Mexico to the Warren Truck Assembly in Michigan by 2020. The move, which involves a $1 billion investment to modernise the plant, follows previous shifts in production plans by carmakers with assembly plants in Mexico, including Toyota's decision to delay production at its new plant in Guanajuato to prepare it for production of the Tacoma pick-up truck, rather than proceed with the Corolla as originally planned.
Such decisions reveal concerns about where the Nafta talks are going and where the administration of Donald Trump (pictured) wants them to go. Carmakers and their service providers are worried about a complete withdrawal from the agreement and a number of them expressed some caution at the Detroit Show.
According to the New York Times and other sources, GM boss Mary Barra urged the Trump Administration at the show not to scrap Nafta. While welcoming modernisation of the agreement, she said any changes should be in the interests of OEMs and those that worked for them.
A spokesperson for GM told Automotive Logistics this week that the company supported efforts to modernise Nafta in a way that would strengthen the North American automotive industry and position it for long-term success. GM considers Nafta vital to the success of the North American automotive industry but a withdrawal from the agreement could have “broad negative implications for the US economy and the auto industry at large”, said the spokesperson.
According to Reuters news agency, meanwhile, Fiat Chrysler Automobiles' CEO Sergio Marchionne said at the show that he hoped the Trump Administration would “retune” some of its demands.
Calls to proceed with less bluster and avoid a withdrawal from Nafta seem warranted: PwC estimates that approximately 65% of Mexican light vehicle assembly was exported to the US in 2017. In the last 12 months, however, various OEM announcements have resulted in an estimated assembly shift of at least 350,000 units from Mexico to the US, according to PwC.
That raises serious worries for those invested in Mexico based on the existing Nafta agreement. Mexico has received significant investment in assembly plants, supplier facilities, equipment and services. In the central state of Guanajuato alone, more than $10 billion has been committed for the period from 2012 to 2018.
Mema's message to CongressThe threat to that continued investment is being being felt in the supplier sector, too. This week, the Motor and Equipment Manufacturers Association (Mema), which represents original and aftermarket automotive parts suppliers in the US, called on its 1,000-plus members to contact their members of Congress with a message to take care in modernising the agreement because of the potential impact on the supplier sector and American jobs.In particular, said Mema, a new study it commissioned from the Boston Consulting Group suggested that changes to the rules of origin could put up to 24,000 US jobs at risk. The study also suggested withdrawing from Nafta altogether could more than double the number of jobs at risk.
Rules of origin provide the basis for customs officials to make determinations about which goods are entitled to preferential tariff treatment under Nafta. The Trump administration has been arguing for tighter rules of origin and higher US content for cars made and sold in the US. That includes a requirement that half the value of all North American vehicles comes from within the US and a much higher content requirement of 85% from North America. Automotive industry groups have cautioned against a US-specific requirement on parts content since the talks began last year.
The Association has previously published information suggesting that US tariffs of 20% will add $16 billion to automotive costs in the US, while at 35% – a rate threatened on imports from Mexico by Trump – that could rise to $27 billion.
Keeping the talks on trackFrom a transport perspective, too, there are concerns. The leaders of the trade associations representing rail freight companies in the US, Mexico and Canada have issued a joint letter this week calling for more constructive negotiations over Nafta and the preservation of various elements that are currently in place.
The letter, signed by the heads of the Association of American Railroads (AAR), the Railway Association of Canada (RAC) and Asociación Mexicana de Ferrocarriles (AMF), calls for “a constructive effort to renegotiate a new agreement that builds on the existing framework and progress” each nation has made.
“Nafta has facilitated an integrated economy where a continental railway network is essential for the transportation and flow of goods across North America,” said the letter. “It has led to additional trade, the opening of new markets, and economic growth for its signatory parties.”
According to the AAR, at least 42% of rail car loads and intermodal units are directly associated with international trade and withdrawing from Nafta would negatively impact over $1 trillion of trade in North America. It said that in 2015, US companies exported more than $30 billion in auto parts to Canada and more than $29 billion in US parts to Mexico.
As the discussions in Montreal proceed this week, fresh discussions are also getting underway in Mexico at this year's Automotive Logistics Mexico conference, where leading carmakers, tier suppliers and logistics providers will also be talking about Nafta and the potential impact on their business.