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 per cent predicting that suppliers located near production sites will be favored. And 73 per cent 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 per cent of a car's steel and 75 per cent 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 per cent of a vehicle's content must be made by workers earning US$16 per hour or more. The rules of origin under the existing North American Free Trade Agreement require 62.5 per cent regional content, and there is no requirement for labour value content.
Forty-one per cent of survey participants believe production costs will increase by 10 per cent over the next three years and a quarter believe the increase could be 25 per cent 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 per cent 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 per cent) feel USMCA will ultimately increase North American vehicle manufacturing and provide a net improvement for workers and consumers.