Car, Parts Companies Exhale, but Not Everyone's Thrilled by USMCA

Steph Willems
by Steph Willems
car parts companies exhale but not everyone s thrilled by usmca

Canada’s autoworkers feel pretty confident they’ll still have a job next year, as the free trade agreement reached by the U.S. and its northern neighbor Sunday night pretty much keeps the status quo alive in that country’s auto sector.

Just last week, with headway essentially absent from the trade negotiations, President Trump repeated his threat of levying a 25 percent import tax on Canadian vehicles. Such a tariff could easily have seen 160,000 jobs erased from the auto and parts manufacturing industries; perhaps more.

However, just because the industry came out all right in the end doesn’t mean the future is entirely rosy.

Tariffs remain on steel and aluminum imported into the U.S., including from Canada. Apparently, getting rid of those is a battle to be waged some other day. Trump claims the tariffs (25 percent on steel, 10 percent on aluminum) might be replaced at a later date by import quotas.

Still, Canada’s leadership and the president of its autoworkers union seem pleased, perhaps more so the latter individual. Bloomberg reports that Canadian auto parts suppliers, among them Magna International, saw some wind finally enter their slack sails today. Most are trading upwards. It helps that the country now finds itself bound by new content rules, with the NAFTA rule of 62.5 percent regional content now upped to 75 percent.

In the agreement, tariff exemptions were placed on 2.6 million Canadian-built vehicles exported to the U.S., which shouldn’t pose a problem. The country currently exports about 1.8 million vehicles per year from plants belonging to Honda, Toyota, and the Detroit Three automakers. Actually, it’s because Canada isn’t likely to ever top that number that has some feeling bummed about the country’s long-term auto health.

According to the Center for Automotive Research, Canadian vehicle production are expected to drop by 135,000 vehicles in the 2016-2020 period. In Mexico, still a lower wage jurisdiction despite stricter wage rules contained in USMCA, it’s the opposite. The country is expected to crank out an extra 850,000 vehicles in that time frame.

Nothing in the trilateral agreement changes the fact that it’s pricier to build cars in Canada. Keep in mind that the country at one time housed a Studebaker factory.

“There’s nothing in here that lowers costs for any of the three countries so compared with the rest of the world, all three countries are probably made slightly less competitive over the longer term,” Brett House, deputy chief economist at Bank of Nova Scotia, told Bloomberg. Dennis DesRosiers of DesRosiers Automotive Consulting called the agreement “a lot of theatre with “very little substance.” He added that higher regional content means added costs for all automakers producing in North America, which could hurt efficiency.

The Southern U.S. is frequently singled out as the jurisdiction with the most to gain from the new agreement, which is exactly what Trump was aiming for. Still, leaders from all three nations walked away claiming a win.

[Image: Ford Motor Company]

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  • Craiger Craiger on Oct 02, 2018

    Hunmira brought in $18 billion for Abbvie in 2017? Really? I'd like to see where you got that number. I happen to be a long time Abbvie stock holder and a biotech investor. In 2017 Abbvie's net income was a little over $5 billion, 65% of which came from Humira. "...most usable drugs are invented in labs that are sponsored by the federal government." Citation for this? It's false.

    • Dan Dan on Oct 02, 2018

      Revenue != net income. Humira was worth 4.7B in sales in the last quarter alone.

  • Vvk Vvk on Oct 02, 2018

    This is all about Chinese parts. Billions in Chinese car parts are used in NA vehicle production. The new rules are intended to restrict that.

  • Kcflyer on one hand it at least wont have dirty intake valves like Honda's entire lineup of direct injection ice vehicles. on the other hand a CRV offers more room, more range, faster fueling and lower price, hmm
  • Tassos BTW I thought this silly thing was always called the "Wienermobile".
  • Tassos I have a first cousin with same first and last name as my own, 17 years my junior even tho he is the son of my father's older brother, who has a summer home in the same country I do, and has bought a local A3 5-door hatch kinds thing, quite old by now.Last year he told me the thing broke down and he had to do major major repairs, replace the whole engine and other stuff, and had to rent a car for two weeks in a touristy location, and amazingly he paid more for the rental ( Euro1,500, or $1,650-$1,700) than for all the repairs, which of course were not done at the dealer (I doubt there was a dealer there anyway)
  • Tassos VW's EV program losses have already been horrific, and with (guess, Caveman!) the Berlin-Brandenburg Gigafactory growing by leaps and bounds, the future was already quite grim for VW and the VW Group.THis shutdown will not be so temporary.The German Government may have to reach in its deep pockets, no matter how much it hates to spend $, and bail it out."too big to fail"?
  • Billccm I had a 1980 TC3 Horizon and that car was as reliable as the sun. Underappreciated for sure.