Trump administration demands in NAFTA trade negotiations meant to push auto jobs back to the United States may not be enough to spark a shift in where automakers build cars and trucks.
New math to determine what qualifies as vehicle content, what limits apply to allow tariff-free auto imports and how long companies would have to comply under a new NAFTA agreement will likely not move the needle for Detroit automakers in particular, industry executives and supply chain experts said.
Automakers are unlikely to uproot billions of dollars of investments in plants and supply chains. And those that cannot comply with standards for passenger cars could simply pay tariffs of around $800 to $900 per vehicle and buy low-cost parts from Asia to offset the cost, industry experts said.
"Broadly speaking the (tariff) increase isn't big enough to make a wholesale change," said Mark Wakefield, head of the North American automotive practice for consultancy AlixPartners. "No one is likely to shut down an active factory in Mexico and build a new one to replace that in the U.S."
Tough U.S. proposals on autos are meant to bring back U.S. manufacturing jobs and central to the Trump administration's approach to renegotiating the North American Free Trade Agreement between Canada, Mexico, and the United States.
General Motors, soon to be the only Detroit Three automaker building pickup trucks in Mexico, is confident it could comply with content requirements for trucks the United States proposes without shifting production, a person familiar with the company's plans said.
But GM's Mexican-made trucks already have a significant share of their value, such as engines, produced in the United States at United Auto Workers union-represented factories, and GM would get another boost if it is allowed to tally engineering done in Michigan.
GM is retooling a high-volume factory to build a new generation of large Chevrolet and GMC pickups in Silao, Mexico. Pickup trucks that do not have enough U.S. or North American content under NAFTA rules could be hit with a crippling 25 percent tariff.
Last year GM churned out more than 400,000 large pickup trucks from Silao, more than 40 percent of its 2017 U.S. pickup truck sales.
Fiat Chrysler Automobiles Chief Executive Sergio Marchionne said on Friday a revised treaty could prompt FCA to "redirect" some Mexican production but would not cause it to further dial back its presence in Mexico.
In January FCA had said it would shift production of heavy-duty pickup trucks from Mexico to Michigan in 2020 to reduce the profit risks should the United States pull out of NAFTA.
Senior U.S., Canadian and Mexican officials on Friday ended a week of talks without a deal to modernize NAFTA, agreeing instead to resume negotiations soon, ahead of a deadline next week.