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Auto Execs Say USMCA Beneficial But Production Costs Will Increase

Jan. 10, 2019
Forty -one percent believe production costs will increase by 10% over the next three years, and a significant number (26%) believe the increase could be 25% or more.

The majority (78%) of automotive executives feel that the changes required by USMCA will have a positive impact on their company in the long term, and more than half (53%) feel USMCA will ultimately increase North American vehicle manufacturing and provide a net improvement for workers and consumers.

This is based on a survey of 100 U.S.-based automotive executives was conducted online by Propeller Insights on behalf of LevaData in December of 2018

However, many of the participants acknowledge that production costs will increase significantly, resulting in higher prices for consumers:

  • 41% believe production costs will increase by 10% over the next three years, and a significant number (26%) believe the increase could be 25% or more.
  • 58% agree these increases will result in higher costs for consumers.

Electronic components were called out as one area where increased costs are expected, with 39% agreeing USMCA will somewhat or significantly impact costs. The impact of these increases will likely be multiplied as these components increasingly make up a larger share of a car’s overall cost.

Labor is highlighted as an area that will become more costly, with 73% stating employee payroll costs will increase or their workforce will be cut.

In addition to raising prices on finished goods, auto execs will aggressively seek savings in the supply chain to reduce the impact of higher production costs:

  • 36% plan to renegotiate part supply deals to pass costs to suppliers.
  • 35% will look for cost savings in the production process.

Pressure to source components from suppliers near North American assembly plants is also a top concern among auto manufacturers specifically:

  • 61% predict suppliers near assembly plants will be favored somewhat or significantly.
  • 78% cite finding North American suppliers or identifying alternate suppliers as a near-term priority for their supply chain.

Concerns About China Tariff

In addition to these concerns, the study also found that the proposed tariff on $200 billion of Chinese goods is also top of mind; 30% of the auto executives surveyed expressed concern about the impact these tariffs could have on their company, compared to 9% concerned over USMCA’s impact.

“The adoption of USMCA, threats of tariffs on Chinese goods, and concerns about the security of tech components made in China are going to be major concerns for the automotive industry in the coming years,” explained Rajesh Kalidindi, founder and CEO of LevaData.

“Auto makers will require a better upstream assessment of geopolitical risk considerations going forward. Knowing where tariffs might be applied and how they could impact cost and supply will be increasingly important — and virtually impossible to manage in Excel.” 

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