The Trump administration continues to report that U.S. trade deals will work for all Americans, but how that will look for automotive OEMs and their suppliers is still to be determined. Although a full withdrawal from the North American Free Trade Agreement (NAFTA) has now moderated to a renegotiation, it is clear that change to NAFTA is likely. President Trump has publicly stated he is committed to renegotiating NAFTA, and if this fails he’ll give notice of the United States’ intent to withdraw from the trade agreement.
While the possible implications on automotive entities are not yet entirely clear, it is certain that U.S., Canadian and Mexican automotive supply chain participants should carefully evaluate the repercussions of such change. The 23-year-old agreement could be modernized to include e-commerce and other aspects that didn’t exist at the time of its creation. It could vary by country, product type or technology.
How long renegotiation will take is open for debate, but the automotive industry needs to be proactive in its preparation, to ensure a competitive position. This should include an understanding of the following questions relative to the current state of an organization:
- What are the likely effects on the automotive supply chain, and who will feel the greatest impact?
- How much exposure do you have based on operations, suppliers and customers in affected regions?
- How does your current manufacturing footprint compare to competitors?
- What are the areas of risk based on your footprint and your supplier and customer profiles?
- What mitigation strategies should be considered? Some examples include: a shift in production; final assembly; current process and equipment versus investment in automation; customer diversification and partnership; or M&A opportunities.
- What impact might this have on the regional workforce (e.g., resource availability and labor rates)?
- What advantages can you currently highlight in the short term that may provide a competitive edge?
- How much local production is available for your product and/or service in country of manufacture, giving you the opportunity to alleviate import/export exposure?
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