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USMCA Ratification and the Automotive Industry: What’s Next?

DuckerFrontier, January 30, 2020

DuckerFrontier’s automotive experts have been monitoring the United States-Mexico-Canada Agreement (USMCA) and its implications on the North American automotive industry. Yesterday’s headline announcing the Trump administration’s ratification is a step forward to realizing a more balanced resolution to both global and North American trade, despite Canada still not having signed this legislation. As outlined in DuckerFrontier’s whitepaper, What “the new NAFTA” means for North American auto supply chains, there are at least two areas we believe require continued monitoring by automotive firms:

  • The rules of origin (ROO) will increase from 62.5% under NAFTA to 75.0% under the USMCA. For OEMs producing and selling vehicles in North America, this implies that supplier footprint requires realignment from sourcing parts internationally to North America, and further analysis on share of parts between US, Canada, and Mexico.
  • Secondly, 40-45% of the parts produced for consumption in North American produced light vehicles will need to come from workers earning at least $16 USD per hour. For firms with a production footprint in Mexico – where the average wage for automotive parts workers are well below US standard wages – reorganization and renegotiation of parts pricing is required. According to the US International Trade Commission, an average cost increase of 1.6% is estimated for vehicles.

Ultimately, as the dust settles, North American production-based OEMs can begin to finalize planning and allocate products/programs that fit with the USMCA guidelines, especially as it relates to parts that originate from North America or the ROW.

In DuckerFrontier’s whitepaper, What “the new NAFTA” means for North American auto supply chains Analyst, Emilie Newton and Managing Director, Abey Abraham outline the base-case, upside, and downside 2020 scenarios for automotive firms surrounding USMCA legislation. Download your copy today.

To build the right plan for your business to navigate changes surrounding USMCA, contact a DuckerFrontier automotive expert today.

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