Auto Industry Players Say USMCA Rules Will Move Some Parts Production
Even though companies that make cars in North America are going to have to change sourcing to meet stricter rules of origin under USMCA, the director of international public policy for Toyota and the head of Canada's auto parts trade group say they expect carmakers to do so to keep the tariff benefits. Toyota's Leila Afas noted that automakers don't have to comply with trade agreements to import, but said, “I believe many will choose to comply with USMCA.” Afas and others discussed USMCA issues during an Oct. 14 webinar hosted by Rice University.
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Afas confirmed Toyota will boost its engine and transmission production in North America to replace imports from Asia, so that it can meet core parts regional value content requirements. Doing so has had “unforeseen challenges” but is on track, she said.
Afas said it will be challenging for Toyota to prove it has enough $16 per hour or better labor in its cars and trucks because 80% of its vehicles' value comes from suppliers outside the company. Toyota purchases from about 500 tier 1 suppliers that “don't have the really deep administrative resources in order to certify or comply with all of these requirements,” she said. Afas said Toyota spends $38 billion a year in North America on buying parts and materials.
Automotive Parts Manufacturers' Association President Flavio Volpe said he doesn't expect Canadian -- or Midwestern -- factories to benefit from the $16 requirement. He said that if an auto or truck plant in Mexico needs to shift some of its supply chain to the U.S. to reach the 40% or 45% wage value content, it will look to Texas, Louisiana or Mississippi, not Ohio, Michigan or Ontario, Canada.
But Texas Secretary of State Ruth Hughs questioned how much parts work might come to Texas. She said that a Honda parts supplier decided to raise wages at a Mexican plant to $16 an hour, triple the typical rate, because it was “still more cost-effective than making the move to the U.S.”
About 17 million new cars and light trucks are purchased in the U.S. each year, and only 12 million produced, Volpe said. He said a little more than 3 million cars are exported from Canada and Mexico into the U.S. annually, about equally split. While he didn't provide an estimate of how many of the exports do not claim the tariff benefit, he said companies will adjust to the new rules to keep the 2.5% benefit for passenger cars. “That 2.5% sounds small, but it's a really big piece of the margins,” he said, which he said tend to be 5% to 9% in the category.